Anwar says govt fails to deliver on tax-to-GDP ratio by 15 percent
LAHORE: Pakistan has one of the lowest tax-to-GDP ratios among developing countries and the fact has been brought into light on a number of platforms but no significant improvement has taken place. Both federal and the four provincial governments have failed in the past seven years to deliver on their promise to increase tax-to-GDP ratio to 15 percent in five years which is a fact that it is thought-provoking.
These views were expressed by Lahore Chamber of Commerce and Industry former vice president and former member of Federal Board of Revenue Tax Reform Committee Kashif Anwar while talking to Customs Today.
He added that it may be recalled that under the 2009 NFC award the centre and four provinces were required to achieve 15pc tax-to-GDP ratio by 2014-15, and a path towards this had been chalked out for all five stakeholders. However, all of them missed the target.
He explained that things have lately improved, but only marginally. In this connection the federal government was required to increase the ratio from 9.3pc in 2009-10 to 13.25pc by the terminal year 2014-15. But even after seven years, the target is nowhere near achievement, he underscored, adding that the tax-to-GDP ratio has inched up from 9.4pc in 2012-13 to 9.5pc in 2015-16. However, thanks to better tax collection by FBR, the four provinces received more funds than were promised by the federal government in the 2015-16 financial years.
Anwar said that FBR collections amounted to Rs3.131 trillion out of which Rs1.448 trillion was reported in the first half (July to December 2015) and Rs1.683 billion in the second half (January to June 2016) of fiscal 2015-16.
He said that in Pakistan tax revenue constitutes only about 9.5 percent of GDP, one of the lowest ratios in the world and only 840,000 people in a nation of about 190 million file tax returns.
“The collection under sales tax is also disappointing, as only 81,800 people file returns. Similarly, the return-to-population ratio is 0.46 percent. By comparison, the tax-to-GDP ratio and return-to-population ratio in India are 17.7 percent and 2.9 percent, Sri Lanka 12 percent and 1.8 percent and Malaysia 16.1 percent and 6 percent, respectively,” the LCCI former VP said.
Some time back, the Federal Board of Revenue formulated a comprehensive plan to broaden the tax base, setting a target of 10 million income tax returns in the next five years. The revenue body planned to launch secret surveys of markets, and field formations were to be asked to maintain computerised stock registers of all identified potential taxpayers. But the plan could only be partially implemented, he stated.
Several initiatives have been taken in the past to improve the tax position but to no avail, he said adding that honest tax payers are harassed and penalized while those who grease the palm of the tax men go scot-free.
Only the salaried classes pay their taxes in full, while traders evade taxes to the maximum extent. The need is to break the unholy nexus between corrupt tax officers and dishonest businessmen by eliminating the element of discretion and setting up a system of fixed taxes while to widen the tax base, agricultural income too should be brought within the tax net, he concluded.
