Pakistan’s tax-to-GDP ratio fell to 11.6% in the fiscal year 2018/2019, down from 13% in the previous fiscal year, according to data released by the Ministry of Finance.
The decline in tax-to-GDP ratio underscores the challenges faced by the federal and provincial revenue authorities in meeting their collection targets.
The shortfall in revenue collection is attributed in part to the general elections held in July 2018, which disrupted economic and administrative activities. Following the elections, the Pakistan Tehreek-e-Insaf (PTI) government assumed office in August 2018. Despite efforts to address the revenue deficit through two supplementary budgets, the measures failed to improve tax-to-GDP ratio.
The Federal Board of Revenue (FBR), the central tax collection authority, reported a revenue shortfall of PKR 561 billion for FY 2018/2019, which resulted in fall in tax-to-GDP ratio. Initially assigned a target of PKR 4.43 trillion, the target was later revised down to PKR 4.39 trillion. However, the FBR managed to collect only PKR 3.829 trillion, slightly less than the PKR 3.842 trillion collected in the previous fiscal year.
Combined revenue collected by federal and provincial authorities stood at PKR 4.473 trillion, a marginal increase from PKR 4.467 trillion in the preceding year. This translated to a tax-to-GDP ratio of just 9.93% for the FBR, reflecting the systemic challenges in broadening the tax base and increasing compliance.
Two tax amnesty schemes were introduced during the fiscal year to encourage the declaration of undisclosed foreign and domestic assets. While these initiatives aimed to boost revenue and formalize the economy, they fell short of expectations.
Frequent changes in FBR leadership further undermined revenue collection efforts. During the fiscal year, the FBR saw three different chairpersons: Ms. Rukhsana Yasmin (July 2018), Muhammad Jehanzeb Khan (August 2018), and Syed Muhammad Shabbar Zaidi (May 2019). These frequent changes disrupted continuity in policy implementation and revenue collection strategies.
The decline in the tax-to-GDP ratio highlights the pressing need for structural reforms in Pakistan’s revenue collection system. Consistent leadership, robust tax policies, and improved enforcement mechanisms are critical to achieving sustainable growth in tax revenues and addressing fiscal challenges.