ISLAMABAD: Pakistan’s tax to GDP ratio has improved to 9.2 per cent in the fiscal year 2021-2022, the Federal Board of Revenue (FBR) said.
In Pakistan, although the tax to GDP ratio has been low compared to other regional countries yet if viewed over the past so many years this ratio has significantly increased.
“The tax to GDP ratio was 4.4 per cent in 1950 which increased to 9.2 per cent in 2022,” the FBR said in a report and hoped that the continuing reform efforts are expected to further increase the Tax to GDP ratio in coming years.
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During early 50s, the main revenue collection source was the Customs Duty which was contributing 66 per cent of the total revenue while direct tax and sales tax was contributing only 12 per cent and 14 per cent of revenue respectively.
Over the years the tax mix changed drastically. By 1995, Customs Duty share had reduced from 66 per cent to 34 per cent percent of the total revenue while direct tax and sales tax’s contribution increased to 27 per cent and 19 per cent respectively.
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Tax mix further changed during last two decades. By 2022, share of Sales Tax increased to 41 per cent and Direct Tax’s 37 per cent while the share of Customs Duty declined to 17 per cent.
The FBR said that the contribution of direct and indirect taxes has changed with share of direct taxes increasing and share of indirect taxes decreasing.
In the year 1952, the share of direct taxes was 14 per cent and the share of indirect taxes was 86 per cent. However, it was changed to the share of direct taxes to 37.2 per cent in the year 2022 as the share of indirect taxes to 62.8 per cent.
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The share of withholding tax in collection of direct taxes increased phenomenally over the years. The share of withholding tax was 44 per cent of the direct taxes in the year 1985 and this share increased to 67 per cent.
The FBR said that rebasing of national accounts affected the tax to GDP ratio adversely.
National Accounts is a systematic framework for the presentation of statistics that provide a wide range of information about the economy. National accounts or System of National Accounts (SNA) provide a summary of national economy.
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There are several aggregate measures in the national accounts, most notably gross domestic product or GDP and investment. GDP at constant prices indicates economic growth to measure the performance of the economy over time or in comparison with other countries/in comparison with previous periods.
In 2022, the National Accounts were rebased to improve the statistical representation of economy.
In the fiscal year 2020-2021, the tax to GDP ratio decreased to 8.6 per cent as per new base year FY=2015-2016 when compared with 9.9 per cent on the basis of base year FY-2005-2006.
