Tax is an obligatory backbone of financial collection of a country which is charged directly or indirectly from people, for services offered through the government or its departments. The main part of the proceeds comes from taxes and an important aim of tax system is to finance public expenditures. Presently the Government of Pakistan for the fiscal year 2024-25, has decided to chase an overambitious tax revenue target of Rs13 trillion, to strengthen the case for a new bailout deal with the International Monetary Fund (IMF). Mainly because of a drop in domestic taxes and customs duty
Presently tax collection by the Federal Board of Revenue (FBR) declined short of the target by almost Rs63 billion in April 2024. In April 2024 the revenue collection stood at Rs654 billion against a projected target of Rs717 billion. It grew by 34.56 per cent compared with Rs486 billion in the corresponding month last year. These statistics would enhance after book adjustments are taken into account. The FBR is expecting a Rs3 to Rs4 billion more. During the first 10 months (July-April) of FY2024, the FBR collected Rs7.363 trillion, falling short of the Rs7.425 trillion target by Rs62 billion. As a result, the shortfall was witnessed in February, January, and April 2024.
The Government of Pakistan has projected a revenue collection target of Rs9.415 trillion for FY2024, an increase of Rs2.219 trillion or 30 per cent from the revised collection of Rs7.2 trillion in FY2023. The revenue collection at the import stage has started to pick up momentum due to the increase in imports.
| Pakistan: Income Tax Expenditure | |
|---|---|
| Details | Rs million |
| Government Income | 57,517 |
| Deductible Allowances | 5,912 |
| Tax Credits | 24,374 |
| Exemption from Total Income | 293,460 |
| Reduction in Tax Rates | 25,492 |
| Reduction in Tax Liability | 4,270 |
| Exemption from Specific Provisions | 62,756 |
| SROs Related Exemptions | 3,179 |
| Total Income Tax Expenditure | 476,960 |
Fast digital age
The Government of Pakistan it is said has finalised a digital-based system to broaden Pakistan’s narrow tax base. The schemes also include professional services providers such as lawyers, doctors, engineers, and other services providers to tax their income.
Economists recorded that tax system also theatres a very important role in achieving other targets, like equity, social and economic enhancement of an economy. For economic growth a well structured, proficient and successful tax system is an essential prerequisite. Countries with structured and firm taxation system grow faster over the period as compared to those countries which do not have such distinctiveness.
To meet developmental and non-developmental expenditures, taxation system plays a very significant role, and eventually to improve economic growth. Taxation system mainly effects the manufacturing and intensification of economic growth.
Our country over the years has a narrow tax base, massive tax evasion and administrative weaknesses in developing an efficient tax system. Consequently, Pakistan has failed to boost tax collection, which is essential to create enough fiscal space essential for infrastructure, education, healthcare and social assistance.
Increased GDP ratio
The government needs to increase its tax-to-GDP ratio and stop increasing its revenue through more taxes charged to sectors already in the tax net.
There are various sectors outside the documented economy that pay no taxes. Experts recorded that 1.0 per cent rise in the tax-to-GDP ratio would have added Rs924 billion in tax revenue, and if we had attained the tax-to-GDP ratio of 13 per cent — previously attained 25 years back — our revenue this fiscal would have reached Rs12,072 billion.
In emerging economies, this ratio ranges from 17 to 19 per cent. It is up to 30 per cent in highly developed economies. This ratio will raise only when experts bring all tax evaders into the tax net. Our failure to meet our expenses is due to our low tax-to-GDP ratio.
It is also said that If Pakistan’s tax collection reaches the emerging economies average of 17 per cent of the GDP, tax collection on Pakistan’s current GDP will stand at Rs15,768 billion and fiscal deficit will be in manageable limits. Actually we made plans but unluckily we are weak in implementations. No one is prepared to invest in Pakistan without sovereign guarantees. In fact, things have gone beyond sovereign guarantees as financiers now seek security guarantees for the security of their nationals. We must improve our governance level in our country.
| Pakistan: Sales Tax Expenditure | |
|---|---|
| Details | Rs in million |
| Fifth Schedule (Zero Rating) | 206,053 |
| Sixth Schedule (Local supplies) | 461,094 |
| Sixth Schedule (Imports) | 214,678 |
| Eighth Schedule (Reduced Rates) | 357,997 |
| Ninth Schedule (Cellular Mobile Phones) | 33,057 |
| Twelfth Schedule (Additional Tax) | 208,066 |
| POL Products (SRO 321/2022) (Local supplies) | 1,257,513 |
| POL Products (SRO 321/2022) (Imports) | 81,225 |
| SROs (Local supplies) | 8,753 |
| SROs (Import) | 5,126 |
| Various Sections (Zero Rating) | 25,159 |
| Total Sales Tax Expenditure | 2,858,721 |