FBR Optimistic of Reaching Tax-to-GDP Ratio Target Despite Shortfall
Federal Board of Revenue (FBR) is hopeful of achieving Pakistan’s tax-to-GDP ratio of 10.6% as set in the ongoing IMF program despite the shortfall in achieving its Rs12.97 trillion tax collection target for this fiscal year. While FBR may not meet the target in the current year, they are confident of meeting the long-term goal of improving the tax-to-GDP ratio.
In the first two quarters, the tax-to-GDP ratio was 9.6% and 10.8% respectively. FBR officials expect the ratio to dip below 10.6% in the third quarter but will cross 11% in the fourth quarter. “We are confident we will achieve the overall target for the year”, said a senior FBR official.
According to the IMF agreement the government is committed to increasing the tax-to-GDP ratio by at least 3% during the program, targeting 13% to 13.3% by the end of the 37-month program. Tax-to-GDP ratio for FY24 is expected to be 8.77% down from 9.22% in FY22.
FBR is expecting a gap of almost half a trillion in this year’s revenue target. Despite that tax collection has grown 26% in the seven months from July to January to Rs6.49 trillion from Rs5.143 trillion in the same period last year. However, some analysts think the tax shortfall could be Rs1 trillion mainly due to lower tax revenue from imports, slow growth in Manufacturing, and the recent drop in inflation.
The government is expecting to generate an additional Rs3.66 trillion through economic growth, enforcement actions, and new taxes. But FBR has a revenue gap of Rs7.1 trillion which they plan to cover through enforcement and technology.
FBR has already prepared a Tax Transformation Plan to broaden the tax base, eliminate non-filers, and strengthen compliance through stricter penalties. This plan is part of the effort to increase the tax-to-GDP ratio in coming years and FBR hopes to achieve 18% tax-to-GDP ratio in the long run. Shehbaz Sharif-led government recently brought the Tax Laws Amendment Bill with provisions for restrictions and penalties to improve compliance. The bill also wants to penalize the underreporting of income and tighten the grip on purchasing property and cars above declared assets.
Despite some resistance especially on property and car purchases, FBR is determined to improve the tax system and achieve the long-term goals of the IMF program.
