KARACHI: Pakistan’s tax-to-GDP ratio scaled back to 11.6 percent in the last fiscal year of 2018/19 from 13 percent a year earlier as the tax authorities couldn’t show considerable performance in revenue collection despite various measures, official data revealed.
The finance ministry’s latest data showed that the tax revenue collection – by federal and provincial authorities – amounted to Rs4.473 trillion in the last fiscal year of 2018/19, slightly up from Rs4.467 trillion in the preceding fiscal year. The apex tax authority Federal Board of Revenue (FBR) collected Rs3.829 trillion in FY2019 compared with Rs3.842 trillion in FY2018. The collection, however, fell short of the annual target of Rs4.39 trillion, which was revised down from Rs4.43 trillion.
FBR’s tax-to-GDP ratio declined to 9.93 percent during the last fiscal year from 11.17 percent a year earlier due to dismal performance in collection of direct and indirect taxes.
Surprisingly, the FBR faced huge revenue shortfall of Rs561 billion against the downward revised target despite that population of return filers for the tax year 2018 reached to a record level of 2.5 million. The FBR earlier told the finance ministry regarding around Rs434.25 billion in shortfall from its key Inland Revenue, comprising income tax, sales tax and federal excise duty. The FBR, in a letter to the finance ministry, said reasons for the shortfall included reduced tax rate on salary, restriction of the Supreme Court on telecom tax, reduction in public sector spending, and import compression. In fact, the FBR forecast a massive revenue shortfall and mentioned about it in March 2019 in a communication with the finance ministry.
Provinces also failed to boost revenue of sales tax on services during the last fiscal year. Collection of sales tax on services by provinces declined 9.4 percent to Rs202.88 billion in the fiscal year of 2018/19.
The Pakistan Tehreek-e-Insaf-led government completed more than a year in office to make planning about tax revenue. And, it made attempts to boost revenue collection during the year.
The new government introduced two supplementary budgets to rectify the mistakes, which it believed the past government made in the budget for fiscal year of 2017/18. Tax amnesty schemes were also introduced for undeclared domestic and foreign assets to fetch much-needed tax revenue.
The FBR saw three chairmen during a brief period. The key level posting was made in a bid to increase revenue collection. On July 2, 2018, Rukhsana Yasmin was appointed as the revenue body’s chairperson. Jehanzeb Khan was appointed as FBR chairman on August 29, 2018 and then Shabbar Zaidi was appointed on May 10, 2019 – who is the current head.
The government will continue to face challenges to boost the revenue collection and create avenues to stabilise the economy. The government has set a gigantic revenue collection target of Rs5.55 trillion for the current fiscal year of 2019/20, which appears ambitious considering slowdown in the economy. Growth fell to 3.3 percent in the last fiscal year from 5.5 percent a year earlier. The central bank foresees a growth of 3.5 percent this fiscal year.