Steps to reduce tax gap: policy group actively analysing reports

The Tax Policy Group of the Tax Reform Co-ordination Group (TRCG) is actively analysing the reports on the tax gap in Pakistan with the mandate to suggest taxation measures to considerably reduce the gap between the tax potential and actual payment of taxes.
Sources told Business Recorder here on Tuesday that the Tax Policy Group would study the Tax Gap reports and conduct analysis to bridge the gap. The Group would also carry out analysis of the existing Tax Gap in the country. The Group would also provide comments on the World Bank report to make use of the analysis given in the report for increasing revenue.
The Group would also develop long-term tax policies and budget proposals to be finalised by March/April. The vision of two taxes would be taken forward under the tax policy proposals being submitted by the Group. In this connection, Tax Policy Group of the Tax Reform Co-ordination Group (TRCG) has decided to analyse the tax models of Sri Lanka, Turkey, Brazil and Taiwan, etc, where tax-to-GDP ratio has shown major jump for chalking out a long-term tax policy for Pakistan for increasing revenue collection.
Sources said that the Chairman of Federal Board of Revenue (FBR), Salman Siddique, had reportedly informed the National Assembly and Senate Standing Committees on Finance that there is 79 percent gap (Rs 796 billion) between tax collections and actual revenue potential, as highest gap of 70 percent had been detected in withholding taxes. A study conducted with the local and World Bank technical support in 2008 showed that tax gap in Pakistan was 79 percent, or Rs 796 billion, compared to 22 percent in US. This was the gap between tax potential and actual payment of taxes.
In USA, the tax gap is around 22 percent whereas in UK it is around 9 percent. On working out 79 percent tax gap in Pakistan, FBR Chairman said that the report had applied some methodology for assessment of the tax gap in the country. If the authentic documented report identified 79 percent as the tax gap, there was a need to identify the areas where the tax gap exists. Within the direct taxes, the tax gap is 74 percent which is much larger as compared to indirect taxes. The tax gap within the corporate sector is 70 percent and tax gap within the individual category is about 4 percent.
According to sources, the Tax Policy Group would conduct an in-depth study on the best tax administrations where tax-to-GDP ratio has shown major jump during the last few years. The purpose of the study is to analyse reasons behind such a major increase in Tax-to-GDP ratios in these countries.