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July 14, 2020

Tax-to-GDP slips to 9.5pc despite marathon reforms

Business

July 14, 2020

KARACHI: Pakistan’s tax-to-GDP ratio has slipped to 9.5 percent in the last fiscal year of 2019/20 from 9.9 percent a year earlier, indicating the government is yet to find means to take it back to double digit despite an array of reforms and management reshuffling in the last two years, official data showed on Monday.

This is the second straight year when the tax-to-GDP ratio witnessed contraction despite reform program initiated by the present government to broaden the tax base and enhance the revenue collection.

Tax-to-GDP ratio by end of fiscal year 2017/18 was 11.1 percent. The ratio remained in double digit during fiscal years 2015/16, 2016/17 and 2017/18. The ratio calculated on the basis of the revenue collection by the Federal Board of Revenue (FBR) during the period under review.

Pakistan is amongst the economies for having lower tax to GDP ratio. For the past several years, the respective governments initiated many reform programs to bring more people into the tax net and enhance the revenue collection.

The present Pakistan Tehreek-e-Insaaf-led government, which came into power after July 2018, announced to stop tax evasion and tax all taxable incomes. However, in contrast not only tax to GDP ratio slipped in first two years of the present government but also in fiscal year 2018/19 the collection of FBR witnessed reversal first time in 51 years.

Sources in FBR attributed the fall in revenue to general elections in 2018/19 and adverse impact of coronavirus during the fiscal year 2019/20.

During the fiscal year 2019/20, the government fixed an ambitious target of Rs5.5 trillion to bring the tax to GDP ratio at 12.61 percent on the basis of gross domestic product of Rs44 trillion. However, with deterioration in revenue collection after lockdown, the tax target was reduced to Rs3.9 trillion and likewise the GDP came down to Rs41.7 trillion.

Besides, the FBR sources said the government was not seen consistent related to policies and administrative matters. They said the government took all possible measures to enhance revenue, including allowing tax amnesty schemes during the past two years. Around five chairmen of the FBR were replaced during the past two years. Tariq Mehmood Pasha was removed from the post of FBR chairman on July 2, 2018, followed by Rukhsana Yasmin on August 29, 2018, Jehanzeb Khan on May 10, 2019, Shabbar Zaidi on April 8 this year and Nausheen Javaid Amjad on July 4.

Javaid Ghani has been assigned an additional charge on July 7 to act as FBR chairman. Shabbar Zaidi was appointed by the government as private sector guy for the post of FBR chairman. The government is aiming to increase the tax-to-GDP ratio to 10.89 percent in fiscal year 2020/21 as it set the revenue collection target for FBR at Rs4.9 trillion.