Tax Relief for Manufacturing and Services Sectors Aid Economic Recovery from Covid-19 in Pakistan

Abstract

In response to the Covid-19 crisis, national and sub-national governments enacted tax relief measures for individuals and businesses. As a result, the federal government is eager to learn how tax policy and administration can aid pandemic recovery efforts.

Weak economic growth and low tax revenues made it difficult for the government to maintain social protection measures during the Covid-19 pandemic. While micro, small, and medium-sized enterprises (MSMEs) received some tax relief in FY20, continued assistance is vital amid the ongoingglobal health emergency, which would likely increase government borrowing requirements. Furthermore, the government sought to improve tax relief to ensure that only the most vulnerable receive exemptions and subsidies.

With Pakistan subject to an International Monetary Fund programme, implementing any tax relief is challenging. Thus, tax relief options must ease the financial shocks experienced by individual taxpayers, small and medium-sized businesses, and trading companies while minimizing the government's revenue loss.