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Progress in tax collection system

Economic managers identified that tax revenues are the most efficient and effective way to increase country’s local resource mobilization and under the attempts the state increases its income to meet compulsory public expenditures. They also mention that it supports the government in growing its capacity to direct the resources for development, reducing poverty and delivering public services. However, to attain these objectives, it is significant to build an efficient, equitable and growth-oriented tax system.

Over the years, the Government of Pakistan has faced various political, economic and administrative issues along with inherent structural challenges, like a narrow tax base, huge tax evasion and administrative weaknesses in developing a well-organized tax system. Consequently, it failed to enhance tax collection necessary to create enough fiscal space essential for infrastructure, education, healthcare and social assistance in Pakistan.

Many research studies revealed that until FY2015, the overall tax-to- GDP ratio varied between 9.1 and 11.0 percent of GDP, however, by FY2016 overall tax collection as percentage of GDP enhanced considerably and stood 12.6 percent of GDP. Significant increase in total tax collection during FY2016 is largely attributed to enhanced collection under GDS (Gas Development Surcharge), GIDC (Gas Infrastructure Development Cess) and Petroleum Levy. The collection under these heads scaled up on account of higher sales of oil and gas products. Of total tax revenue, Federal Board of Revenue (FBR) tax collection as percentage of GDP has also recorded an extraordinary improvement and reached at 10.7 percent of GDP in FY2016. The improvement in FBR tax-to-GDP ratio has been on account of substantial reduction in tax concessions and exemptions, increased WHTs on non-filers of income tax returns and improvements in tax compliance and enforcement.

Presently the Government of Pakistan decides to improve to Rs4.5 trillion the revenue collection target also a cut in income taxes in the new federal budget for the new fiscal year 2018-19. It is said that FBR has been tasked to prepare the first draft of tax relief and revenue measures by the end of this month. The present government has already set April 27 for the announcement of budget 2018-19. Different sources in Pakistan mention that FBR is working on various proposals to support 15 percent growth in revenue collection in 2018-19. These initiatives would also take into consideration impact of GDP growth and inflation in the country.

The Federal Board of Revenue predicts to collect almost Rs3,900 billion by the end of this fiscal year 2017-18, which will be about twice of the tax revenue since 2013.

 

Economic experts have also mentioned that the Government of Pakistan has imposed 20 new WHTs since June 2013 while raising the rates for non-filers on the pretext of enhancing tax compliance. The number of WHT categories has increased to 56 from 36 since June 2013. Resultantly WHT equals over 70 percent of total direct taxes. Other potential areas where taxes will be increased include regulatory duties on non-essential and luxury products/items. Furthermore, the FBR has also revealed various products, which imports have surged because of free or preferential trade agreements, for imposition of regulatory duties. It is hoped that the predicted depreciation of the rupee in the upcoming fiscal year (2018-19) may also lead to higher revenue collection.

Economic experts also mentioned that the tax authorities are also working on three proposals, growing exemption limit, falling tax rate for individual taxpayers and introduction of simplified return form. It is proposed to improve the basic income tax exemption limit to a minimum of Rs500,000, from the existing Rs400,000 for the salaried class. Currently, the highest income tax slab of 35 percent was applicable to income of individual taxpayers.

FBR TAX COLLECTION (Million Rupees)
Period Direct Taxes Indirect Taxes Total Total Tax Collection
Sales Excise Customs
1949-50 90 0 39 319 358 448
1959-60 303 270 248 357 875 1,178
1969-70 958 522 1,890 1,240 3,652 4,610
1979-80 5,333 2,410 9,701 12,572 24,683 30,016
1989-90 15,642 18,574 21,433 48,584 88,591 104,233
1999-00 112,950 116,711 55,784 61,659 234,154 347,104
2009-10 525,977 516,348 124,784 160,273 801,405 1,327,382
2010-11 602,451 633,357 137,353 184,853 955,563 1,558,014
2011-12 738,424 804,899 122,464 216,906 1,144,269 1,882,693
2012-13 743,409 842,528 120,964 239,460 1,202,952 1,946,361
2013-14 877,255 996,382 138,084 242,810 1,377,276 2,254,531
2014-15 1,033,720 1,087,790 162,248 306,220 1,556,258 2,589,978
2015-16 1,217,474 1,302,371 188,055 404,572 1,894,998 3,112,472
2016-17 1,344,226 1,328,965 197,911 496,772 2,023,648 3,367,874
FY 2018
Jul/17 69,603 90,007 7,304 39,648 136,959 206,562
Aug/17 84,885 97,208 11,017 44,132 152,357 237,242
Sep/17 132,435 126,900 17,335 44,364 188,599 321,034
Oct/17 92,200 119,129 12,163 47,067 178,359 270,560
Nov/17 101,673 108,278 14,793 49,207 172,278 273,951
Dec/17 192,956 149,004 20,579 58,197 227,780 420,736
Source: SBP
Conclusion

No doubt, in Pakistani poorest of the poor pay taxes while the rich whose total contribution to overall tax revenue does not exceed 5 percent, enjoy special rights or privileges and a concessionary regime under the country’s unethical tax structure. The elite, just like Pakistan’s powerful personalities, should be made to pay taxes.

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