FBR concedes decline in tax-to-GDP ratio

ISLAMABAD: The Federal Board of Revenue (FBR) has conceded that its tax-to-GDP ratio has declined and plumped to 9.2 percent during FY2021-22.

According to FBR’s report Evidence Based Revenue Forecasting for 2023-24 released here on Tuesday stated that the FBR revenue collection has shown a steady trend during the last six years as a percentage of GDP.

The Tax-GDP computations were updated due to the rebasing of National Accounts in early 2022. The ratio remained in the range of 9.6 percent to 11.4 percent, however, due to rebasing a substantial impact has been noted as it plummeted to 9.2 percent during FY 2021-22 instead of 11.4 percent.

The FBR report says that the autonomous growth of FBR revenues for FY2023-24 is projected at Rs9,000 billion calculated on the basis of expected collection figures for FY2022-23 translating into a growth of 26.1%. This amount would be further enhanced as a result of policy/administrative measures to be taken separately.

It is relevant to mention here that the government has agreed with the IMF for FBR’s collection target of Rs9.4 trillion under the Standby Arrangement (SBA) programme.

The growth trend of FBR collection over the past five years’ period FY2017-18 till FY2021-2022 shows an increasing trend except one year in which the growth was negative. The growth in FY2018-19 was a negative (0.4) percent, however, in the following years it started picking up. In FY2019-20 growth remained 4.4 percent and reached 18.7 percent in FY2020-21 despite Covid-19 related challenges.

This upward trajectory continued and particularly during FY2021-22 the growth reached well above the normal range and the federal taxes recorded almost 30% growth. The target was exceeded by Rs49 billion. The collection also crossed the 6 trillion mark for the first time in the country’s history.

The traditional methodology has been adopted to forecast FBR revenues for FY2023-24. The autonomous growth has been applied on base year’s (FY2022-23) expected collection (Rs7,139 billion) for respective taxes, which estimates an increase of Rs1,861 billion for FY2023-24. This amount has been added in the expected collection of FY2022-23 thus arriving at an estimate of Rs9,000 billion.

During FY2023-24, given that the prevailing downturn in economy is reversed, a higher growth rate is expected in FBR revenues, and it is estimated that autonomous growth will reach around Rs9,000 billion. However, this autonomous growth is expected to be further reinforced by policy/administrative measures to be taken in due course. FBR taxes are generally buoyant and there is a potential for achieving growth in tax revenues provided that macroeconomic indicators perform well.