Lahore: President Dr. Arif Alvi emphasized the imperative for Pakistan to bolster its tax collection mechanisms and elevate the tax-to-GDP ratio as a strategic approach to address persistent financial challenges.
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Pakistan’s tax to GDP ratio improves to 9.2 per cent in FY22: FBR
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.
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Tax to GDP ratio estimated at 10.8% in FY22
ISLAMABAD: Pakistan’s tax to GDP ratio has been estimated at 10.8 per cent for the fiscal year 2021/2022 as against the ratio of 8.5 per cent in the preceding fiscal year, according to Economic Survey of Pakistan 2021/2022 released on Thursday.
The tax to GDP ratio has been estimated on the basis of tax collection by the Federal Board of Revenue (FBR). The FBR tax to GDP ratio since fiscal year 2015/2016 is calculated on the basis of the revised GDP at the new base of 2015/2016, according to the survey.
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The tax-to-GDP ratio is the real index for measuring tax compliance, capacity, and efficiency in the tax system. A higher tax to GDP ratio allows the government to rely more on domestic resources rather than external sources of revenue, while also ensuring the availability of sufficient funds to meet a country’s development and social expenditures.
Unfortunately, the tax to GDP ratio in Pakistan remains low over the years. There are a variety of factors responsible for the low tax to GDP ratio including a narrow tax base particularly agriculture contributing minimally to the tax collection, tax evasion, poor documentation, the informal economy, exemptions/concessions, smuggling, weak audit & enforcement, a lack of automation, and lengthy litigation.
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As a result of insufficient tax revenues, the country has faced numerous challenges over the years in providing much-needed fiscal space for priority areas such as infrastructure, education, health, and targeted social assistance.
Overall tax revenues (federal & provincial) increased to 9.4 percent of GDP in FY2021 against 9.3 percent of GDP recorded in FY2020. In total, FBR which collects a major part of tax revenues was able to increase the tax to GDP ratio to 8.5 percent in FY2021 against 8.4 percent of GDP in FY2020.
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Total tax collection has been severely impacted over the last two years: first in FY2019 due to a slowdown in economic activity because of stabilization measures, a low tax rate on major petroleum products, import compression, suspension of withholding tax collection on mobile top-ups, and a reduced rate on salary income.
Second, during FY2020, the COVID-19 crisis hampered tax collection. However, FBR’s measures to improve the tax collection helped it to achieve a growth of 19 percent in FY2021 against a 4.4 percent rise in the preceding year.
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It is worth mentioning that FBR tax collection crossed the Rs 4 trillion mark for the first time in history. Nonetheless, during the last six years, the tax to GDP ratio remained lower within a range of 8.4 percent and 9.8 percent.
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IMF wants Pakistan to improve tax to GDP ratio to 20%
ISLAMABAD: Finance Minister Shaukat Tarin on Tuesday said the International Monetary Fund (IMF) wanted Pakistan to improve tax to GDP ratio to 20 per cent through structural changes.
Improving tax to GDP ratio to 20 per cent from 9 per cent is in the benefit of the country, he added.
Addressing to the interactive session with media persons along with Federal Minister for Energy Muhammad Hammad Azhar, Governor State Bank of Pakistan (SBP), Dr Reza Baqir, Minister for Information and Broadcasting, Fawad Hussain Chaudhry, State Minster for Information Farrukh Habib and Special Assistant to Prime Minister on health, Dr Faisal Sultan, he said that the existing tax to GDP ratio in the country was the lowest.
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Tarin said, the IMF wanted Pakistan to collect additional taxes of Rs700 billion by eliminating various tax exemptions, however with negotiations with the team, the government was successful in convincing them of Rs343, hence declining the demand by Rs357 billion. The Minister said that out of this, Rs71 billion is taxed on luxury items of the rich.
He said that despite the IMF demands, the government did not enhance taxes on various items and also did not do away with some exemptions including pesticide, fertilizer, tractors, and provident fund and food and beverages items. Tarin said: “We also subsidized solar panel and other items and paid 100 per cent tax on laptops.”
“We have a Rs33 billion subsidy option that we can use as needed,” he said. The finance minister said that the government has given a tax exemption of about Rs350 billion which is not discussed anywhere.
READ MORE: SBP responds to misconceptions on amendments to State Bank Bill
He dispelled the misconceptions about the autonomy of State Bank of Pakistan (SBP). He said that even when the SBP is provided autonomy, all of its eight board members would be selected by the government, so there is no question of any compromise.
The minister said that the government wanted to give autonomy to the State Bank of Pakistan and it would not be like in the past when the government used to overdraft Rs7 trillion and insisted on printing currency notes. He said that a total of eight board members of SBP will be nominated and appointed by the government and: “We want to empower the central Bank board.”
Answering a question, he said that there is a market of Rs700 billion in the pharmaceuticals sector, but cosmetics and energy products made from this zero duty raw material of pharmaceutical allied will be taxed. “We have kept the exchange rate stable at Rs166,” he added.
The finance minister said that the government had stabilized the exchange rate, which he said was impacted by the situation in neighboring country, Afghanistan.
Governor State Bank of Pakistan (SBP), Dr Reza Baqir said that the decision of autonomy of any organization is made on its ownership and appointment there, and then in SBP this work is done by the government.
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The SBP governor said that the interest rate in SBP is decided by the Monetary Policy Committee which is appointed by the government. He said that the Current Account Deficit (CoD) issue was more prevalent in the previous governments, which have been largely resolved by the present government.
Federal Minister for Energy, Muhammad Hammad Azhar, said that Pakistan has a gas problem in winter because of which gas reserves in Pakistan are depleting day by day, due to which there is gas shortage at the domestic and industrial level in the country.
The minister informed that no gas reserves have been discovered in the last few decades and: “We have delivered gas across the country which is primarily a matter of supply and demand.”
He said that earlier gas reservoir deletion was up to 9 percent but now it has increased to 25 percent.
Briefing the media persons on the flagship initiative of ‘Sehat Card’, Special Assistant to the Prime Minister on National Health Services, Regulations and Coordination Dr. Faisal Sultan said it was the physical manifestation of a compact done by the state with its citizenry for their well-being.
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He said the health card, which provided health insurance worth Rs one million to each family per year, was now launched in Punjab after its successful implementation in Khyber Pakhtunkhwa. Initially, relatively poor people were covered, but the entire citizenry was included under the initiative after thorough analysis.
From January 1, 2022, he said all the citizens having Azad Jammu and Kashmir, Gilgit Baltistan, Islamabad, and Punjab as the permanent addresses on their Computerized National Identity Card had been entitled to the health card.
Highlighting contours of the initiative, he said every individual was being covered through his or her family head which had been explained in light of the policy of the National Database and Registration Authority (NADRA).
He said a wide range of diseases that needed admission to the hospital was being covered under the health cards.
The diseases included surgical and medical conditions, childbirth, dialysis, cancer and others Dr. Faisal said hospitals from both the private and public sectors were empaneled under the initiative, which would not only provide an opportunity to the government hospitals to improve their services by augmenting their budgets but also help the private sector to invest in far-flung areas.
A thorough analysis of the facility was being done on a regular basis to address any irregularity if found with its utilization, he said while responding to a query.
The SAPM said the sudden admission of a member of a family in hospital disrupted the household budget of almost every class including middle, lower-middle and others. The idea was to give health insurance to people to save them from such expenses.
Terming the Sehat Sahulat Scheme a ‘silent revolution’ in the health infrastructure of the country, he said watchful management of the initiative would make it a game-changer for the sector.
To another query, he said the initiative would not have any major impact on the public health budget.
Special counters had been set up in every empaneled hospital where a layman was being sensitized about the programme, he said while responding to another question.
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Tax to GDP ratio at 20% prime objective: Tarin
Finance Minister Shaukat Tarin has said that the prime objective of the government to take the tax-to-GDP ratio to 20 per cent in coming years which currently stood at 8-12 per cent.
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FBR projects 12 percent tax to GDP ratio in three years
ISLAMABAD: The Federal Board of Revenue (FBR) is projecting tax-to-GDP ratio at 12 percent in three years after slippage of the ratio to a single digit in 2019/2020, a report said.
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Tax to GDP ratio slips to 11.4 percent in FY20
ISLAMABAD: Tax to GDP ratio has slipped to 11.4 percent in fiscal year FY20 (2019/2020) when compared with 11.6 percent in the preceding fiscal year, according to statistics released by the finance ministry.
The size of Gross Domestic Product (GDP) has been measured at Rs41,727 billion in fiscal year 2019/2020 as compared with Rs38,559 billion in the preceding fiscal year.
The total tax collection was recorded at Rs4,747 billion during the fiscal year under review as compared with Rs4,473 billion in the preceding fiscal year.
The tax contribution of the federal government was recorded at Rs4,334 billion and contribution of the provincial government was Rs413 billion during fiscal year 2019/2020.
Whereas, the tax contribution of the federal government was at Rs4,061.62 billion and the contribution of the provincial governments was Rs402 billion in the fiscal year 2018/2019.
The collection of the Federal Board of Revenue (FBR) was at Rs3,998 billion in the fiscal year 2019/2020 as against Rs3,829 billion in the preceding fiscal year.
However, the FBR’s revenue collection to the GDP fell to Rs9.58 percent in fiscal year 2019/2020 as against 9.93 percent in the preceding fiscal year.
The collection of direct taxes was recorded at Rs1,524 billion in fiscal year 2019/2020 as compared with Rs1,445.6 billion in the preceding fiscal year.
Out of the total direct taxes, the collection of property tax was at Rs9.65 billion as compared with Rs7.02 billion.
The collection of tax on goods and services increased to Rs1,855 billion in fiscal year 2019/2020 as compared with Rs1707 billion in the preceding fiscal year.
The collection of other taxes recorded increase to Rs732.58 billion in fiscal year 2019/2020 as compared with Rs627.65 billion in the preceding fiscal year.
The duty/tax collection on the international trade recorded decline to Rs626.38 billion in fiscal year 2019/2020 as compared with Rs685 billion in the preceding fiscal year.
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Tax to GDP ratio to ease at 11pc as COVID19 losses estimated at Rs1,023bn
ISLAMABAD: Pakistan’s tax to GDP ratio likely fall to 11 percent as losses due to coronavirus lockdown on tax revenue has been estimated at around Rs1,023 billion in current fiscal year.
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Pakistan’s tax-to-GDP ratio slips to 11.6 percent
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.
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