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June 15, 2021

Govt concedes FBR’s tax-to-GDP ratio stood at 11.1pc in 2017-18

ISLAMABAD: The government has conceded that the FBR’s tax-to-GDP ratio stood at 11.1 percent of GDP in financial year 2017-18, which had now decreased to 10.1 percent and 9.58 percent respectively in 2018-19 and 2019-20.

It indicates that the FBR’s tax-to-GDP ratio was standing on the higher side under the PMLN led regime but it decreased under the PTI rule. The government had attributed to Covid-19 pandemic and other economic challenges as factors for the declining FBR’s tax-to-GDP ratio in recent years.

The FBR’s tax-to-GDP ratio is expected to remain stagnant or may further deteriorate for outgoing fiscal year 2020-21 ending on June 30, 2021. According to the Evidence Based Revenue Forecasting for 2021-22 released by the FBR, the major part of the government tax revenues is collected by FBR. A substantial increase in the tax collections has been witnessed during the last two decades. The FBR tax collection was just around Rs392 billion in 2000-01, which has jumped to around Rs4 trillion in 2019-20. The average growth till FY 2017-18 remained 14.1pc. However, due to the Covid-19 pandemic, the yearly growth has plummeted, thus affecting slightly the average annual growth for the period 2001-2020 as well (13.9pc).

The five years average growth was 9.3pc, however, by excluding the last two years, average growth for normal years i.e. FY 2013-14 to FY 2017-18 stands at 14.6pc. Similarly, in the tax-to-GDP ratio, a similar trend has been noticed and it kept on rising till FY2017-18 and reached 11.2 but later on, this healthy trend couldn’t continue during FY2018-19 and FY2019-20, which is mainly attributed to the Covid-19 pandemic related economic challenges. After a slow growth in previous two years, now the collection is picking up. This performance is very encouraging as compared to previous couple of years. The nine months target has been achieved to the extent 103.4pc.

With the recovery of economy, the revenue collection is also improving, and with further improvements in coming months, hopefully the tax collection shall also increase, thus enabling FBR to achieve its revenue FY2021-22 target.

The FBR collects Direct Taxes (DT), Sales Tax (Domestic & Imports), Federal Excise Duty (FED) and Customs Duties (CD).