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You are here: Home»Taxation»Pakistan»Tax evasion, weaknesses caused lowest tax-to-GDP ratio in region: government admits

Tax evasion, weaknesses caused lowest tax-to-GDP ratio in region: government admits

The government has admitted that massive tax evasion and administrative weaknesses in the tax system has resulted in lowest tax-to-GDP ratio in the region as well as developing countries. According to the Economic Survey (2012-13) issued here on Tuesday, a well designed tax structure of the country not only improves the economic and industrial competitiveness but also contributes toward stimulating industrial activity and accordingly growth in the economy.

The strong base of a tax system provides a more stable source of income needed to finance the public expenditure with an aim to relieve poverty and deliver public services. Historically, Pakistan''s tax system undermined due to structural weaknesses like narrow tax base, massive tax evasion and administrative weaknesses etc. These structural weaknesses have taken a toll on overall tax collection as the country has witnessed a lowest tax-to GDP ratio not only in the developing countries but also within the region.

Despite the increase in tax revenues, FBR tax to GDP ratio varied between 8.5 to 9.6 percent during the past 12 years. During July-April, 2012-13 FBR tax to GDP ratio stood at 6.6 percent against 7.1 percent recorded in the same period last year.

Present tax structure of Pakistan is distortionary and incentivising massive tax evasion. Additionally, some sectors are under taxed and some are not taxed at all which reflects the narrow tax base. In particular, there is a least contribution in taxes from the major sectors of our economy (agriculture and services), as agriculture is contributing 2.5 percent in tax against its 21 .4 percent share in GDP, while services sector is contributing 36.7 percent against its major share in GDP ie 57.7 percent. There is a broad consensus that tax to GDP ratio can only be enhanced if all sectors of economy contribute proportionately toward tax revenue.

Tax structure in Pakistan has witnessed substantial changes over the years as the share of direct tax increased from 35.3 percent in 2001-02 to 39.2 percent in 2011-12 and is expected to increase further by 39.1 percent in 2012-13. Sales tax share in total tax collection increased from 41.2 percent in 2001-02 to 43.0 percent in 2011-12. Share of custom duty in indirect taxes has increased from 18.3 percent in 2001-02 to 19.0 percent in 2011-12, whereas it is expected to decrease by 17.1 percent in 2012-13. On the other hand the share of excise duty in indirect taxes has declined from 18 percent in 2001-02 to 10.7 in 2011-12 and it is expected to decline further by 8.0 percent in 2012-13. Sales tax as an important consumption tax accounts for 74.3 in percent of indirect taxes.

Copyright Business Recorder, 2013



 



 
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Annual2012/13
Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
MonthlyFebruary
Trade Balance $-1.433 bln
Exports $2.167 bln
Imports $3.600 bln
WeeklyApril 14, 2014
Reserves $9.713 bln