The State Bank of Pakistan has urged the government to remove revenue leakages and impose tax on agriculture and services to raise more revenue. The SBP in its second quarterly report has again drawn government's attention towards non-taxed agricultural sector, which contributes for over 24 percent in GDP.
"The only way out for the government is to show political will to prioritise its expenditure heads and implement tax reforms aimed at removing tax exemptions eg taxing agriculture and services", the SBP said, adding that even if this does not deliver immediate tax revenues, it would close the door for tax avoidance.
According to report on the revenue side, although RGST has become the focal point, addressing revenue leakages and glaring exemptions (eg agriculture and ineffective taxation of properties) needs serious attention. Although some revenue measures have been taken recently, the targets for the year may still be ambitious, it added.
The SBP Report noted that increasing the tax base is without doubt the toughest structural reform to implement, and the one that needs the greatest political will. "The sense of stagnation/resistance is understandable. However, one should realise that a more credible breakthrough in this area would pave a much easier path for Pakistan's economy, going forward," it said.
Looking ahead, perhaps measures like the withdrawal of exemptions from GST signal a more inclusive and aggressive intent for the next fiscal year budget, recent FBR efforts to identify wealthy non-payers is a good sign in this regard, the report said. The government appears to be working with key stakeholders (Pakistan's political leadership) to implement revenue policies, which may not get the necessary support from their financial and political constituencies.
According to the report, total revenues increased by 8.8 percent YoY to Rs 989.6 billion during H1-FY11 and majority of this increase was attributable to advance income tax payments under the head of direct taxes; and secondly growth in taxes on goods and services and international trade due to the increase in rupee imports. However, revenues from the petroleum development levy declined YoY as prices of POL products have been higher on average in H1-FY11 resulting in weaker sales of high-speed diesel (HSD) and kerosene, it said. Growth in non-tax revenues dampened somewhat, largely due to a decline in transfer of SBP profits.
Receipts under the head of dividends showed a decline for the second consecutive year, due to lower earnings of public sector institutions and delay in dividend income receipts from these institutions. In addition, receipts under the head of defence, however, increased appreciably in H1-FY11compared to the same period in the last five year as $743 million were received on account of logistics support.
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Table 5.1: Fiscal Situation -A Snapshot
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FY10 FY11 H1
Q1 Q2 Q1 Q2 FY10 FY11
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YoY Growth (in percent)
Total revenue 11.0 7.4 -6.3 22.1 9.0 8.8
Tax revenue 7.9 19.7 6.2 12.2 14.0 9.5
Nontax revenue 18.8 -17.6 -35.5 51.5 -2.2 6.9
Total expenditure 24.5 18.0 3.9 21.4 21.1 12.7
Current 14.2 16.1 8.8 22.8 15.2 15.9
Development and
net lending 100.8 64.5 -45.8 17.3 80.3 -13.2
as percent of GDP
Fiscal balance -1.5 -1.2 -1.6 -1.3 -2.7 -2.9
Revenue balance -0.6 -0.4 -1.0 -0.4 -1.0 -1.4
Primary balance -0.6 -0.1 -0.7 -0.3 -0.7 -1.0
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