Enhancement of tax-to-GDP ratio: ‘Govt should curtail tax evasion, illicit trade in major sectors’

LAHORE: “The government could enhance the tax-to-GDP ratio, increase tax collection and reduce the budget deficit by curtailing tax evasion and illicit trade in major sectors.”

This was stated by Fawad Khan, spokesperson for Mustehkam Pakistan, an advocacy firm for curbing illicit trade and tax evasion in the country to safeguard interests of marginalized and low income communities.

According to him, the nation incurs substantial losses, exceeding Rs 1 trillion, due to tax evasion and illicit trade in five key sectors: real estate, tobacco, pharmaceuticals, tires and lubricants, and tea.

As per international research report, the real estate sector alone contributes to an annual tax evasion of Rs 500 billion, with the tobacco sector adding Rs 240 billion in tax losses. The tyres and lubricants sector records Rs 106 billion in tax evasion, while the pharmaceutical industry experiences annual losses of Rs 65 billion. The tea sector also suffers an annual tax loss of Rs 45 billion.

Fawad urged that this significant amount needs to be collected, as these tax leaks, combined with illicit trade and flawed policies, along with inadequate enforcement, have plunged Pakistan into a dire economic situation. He further said the World Bank (WB) was also deemed Pakistan's tax collection insufficient to meet its financial necessities. The WB report states that progressive countries should maintain a tax-to-GDP ratio of at least 15%, whereas Pakistan currently stands at only 11.6%, he added.

The spokesperson stressed that increasing the tax-to-GDP ratio, fiscal tax collection, and curbing illicit trade in major sectors are the need of the hour. This not only helps meet tax targets aligned with the International Monetary Fund (IMF) but also facilitates the allocation of funds to human development projects, he said.

The government needs to take decisive action in curbing illicit trade and tax evasion for the betterment of the country. It is imperative for sustaining economic stability, meeting international standards, and channeling resources towards crucial human development initiatives, Fawad concluded.

Copyright Business Recorder, 2024