Tax to GDP Ratio Projected at 8.9% for FY24: Economic Survey

Tax to GDP Ratio Projected at 8.9% for FY24: Economic Survey — The Economic Survey of Pakistan 2023-24 has projected a tax to GDP ratio of 8.9 percent for the upcoming fiscal year, reflecting a modest increase from the 8.5 percent recorded in FY 2023. This projection is based on the Federal Board of Revenue’s (FBR) collection performance during the outgoing fiscal year.

Despite the government’s efforts to enhance tax collection in FY 2023, economic contraction posed significant challenges, leading to tax revenues falling short of the revised target of Rs 7,200 billion. The FBR’s tax to GDP ratio has oscillated between 8.4 and 9.8 percent over the past six years, impacted by a narrow tax base, pervasive tax evasion and avoidance, ineffective enforcement, poor documentation, numerous exemptions, and provincial fragmentation.

In the face of these unprecedented challenges, the FBR still managed a commendable growth rate of 16.5 percent, achieving Rs 7163.8 billion in FY 2023, up from Rs 6148.5 billion in FY 2022. Direct taxes emerged as the primary revenue source, with a robust growth rate of 43.1 percent, followed by 15.3 percent growth in Federal Excise Duty (FED), and a modest 2.4 percent growth from sales tax. Conversely, revenues from customs duty experienced a 7.9 percent decline due to the import compression policy.

Indirect taxes continue to dominate Pakistan’s tax revenue composition. However, the government is actively implementing measures to boost the collection of direct taxes. The strategy to create a more progressive and equitable tax system by shifting the burden to the wealthier segments of society has significantly contributed to the growth in direct taxes. Consequently, the share of direct taxes in total FBR revenues increased markedly to 46 percent in FY 2023, up from 37.2 percent in FY 2022.

In contrast, the contribution of indirect taxes decreased to 54.4 percent from 62.8 percent in the previous fiscal year. Within the total FBR tax collection for FY 2023, sales tax accounted for 36.2 percent, FED for 5.2 percent, and customs duties for 13.0 percent.

The Economic Survey underscores the critical need for comprehensive tax reforms to broaden the tax base, improve enforcement, and enhance documentation. These reforms are essential to achieve a more sustainable tax to GDP ratio and ensure fiscal stability. The government’s ongoing efforts to enhance tax policy and administration are aimed at fostering economic resilience and equitable growth in the years to come.

As Pakistan navigates through its economic challenges, the projected tax to GDP ratio of 8.9 percent for FY 2024 marks a cautious yet optimistic step towards fiscal consolidation and economic recovery.