Tax-to-GDP ratio slips to 9.6pc in FY2020

KARACHI: Tax-to-GDP ratio in Pakistan has slipped down to 9.6 percent for the last fiscal year as shutdown related to coronavirus further marred the revenue collection efforts, a FBR report showed on Wednesday.

The Federal Board of Revenue (FBR), in its revenue year book, said the tax-to-GDP ratio on the basis of FBR collection declined from 10.1 percent in 2018/19. It was 11.1 percent in the 2017/18. The last single digit tax-to-GDP ratio was recorded in fiscal year of 2014/15.

“The tax-to-GDP ratio has declined during last two years,” said the FBR. “However, the decline in FY20 has been lower as compared to the previous fiscal year.”

The FBR expressed reservation over ambitious revenue collection target set for the last fiscal year. “Target set for FY 2019/20 requiring a growth of around 43 percent was quite ambitious keeping in view ground realities discussed above,” it said.

The tax-to-GDP ratio on the basis of overall federal government revenue collection slipped to 11.4 percent in 2019/20, compared with 11.8 percent in 2018/19 and 12.9 percent in 2017/18.

The FBR collected Rs3.9 trillion during the last fiscal year to surpass the Rs3.9 trillion target that was revised multiple times. However, the collection was much lower to the actual target of Rs5.5 trillion.

FBR said the monthly growth trend indicated a good increase from July 2019 to February 2020. However, later on the growth trend reversed and there was a negative growth due to COVID-19 during the last four months the last fiscal year.

The FBR said the fiscal year 2019/20 was a very difficult year for the economy and for the FBR revenues because of lockdown related to COVID-19.

At the time of allocation of the target to FBR, it was estimated that an impact of Rs637.4 billion would be witnessed in 2019/2020 with respect to policy measures introduced by the government.

The FBR said import decline by around six percent resulted in a shortfall of sales tax collection at import stage, which grew just 7.2 percent. Withholding tax at import stage has also been affected negatively and collection fell 10 percent.

Meanwhile, customs duties and federal excise duty at the import stage have also been affected. Their collection declined nine percent and 22.4 percent, respectively.

“Due to less consumption of petroleum products, domestic sales tax collected from oil marketing companies has reduced considerably,” the FBR said.

The revenue collection from automobile sector also fell due to decline in production and sales and rupee depreciation against the US dollar that make imports costly. Overall economic recession has made a negative impact on tax collection, the FBR said. Large scale manufacturing sector posted decline, resulting in low payment of taxes. “The growth rate of the national economy expected at the time of budget allocation could not be materialised due to multiple macroeconomic reasons,” said the FBR.