I HAVE observed that the formal sector of the economy is shrinking rapidly, while black economy is increasing manifold.
People are now keeping cash at home or in lockersinstead ofin theirbank accounts.
There are two main reasons for this: (1) excessive taxation on those sectors of the economy that are already overtaxed; (2) coercive measures by the Federal Bureau of Revenue to generate revenue.
People don`t want to pay tax because they are not satisfied with the way tax money is spent. More reasonable salaries and simpler lifestyles for politicians in power and government functionaries, including judges, would help.
Furthermore spending all the money on motorways and transport infrastructure is not wise policy either.
It is also noteworthy that foreign exchange reserves are under pressure.
Higher interest rates would help attract investments in local currency and make the Pakistani rupee stronger. At the present interest rates, money can only fly abroad or out of banks and national saving centres.
