Direct tax boost catapults tax-to-GDP ratio into double-digit

ISLAMABAD: The improvement in the tax-to-GDP ratio from a five-year average of 8.7 percent to a double-digit 10.3 percent in 2024-25 is primarily driven by a quantum increase in the direct taxes.

The share of direct taxes is 5.1 percent of the total GDP, followed by sales tax, which accounts for 3.4 percent of the GDP, said an FBR report.

According to the report, in 2024-25, the FBR was able to recover Rs. 874 billion from enforcement measures vs Rs. 105 billion in 2023-24. This eight-fold increase is driven by specific interventions along with structural and governance changes.

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Across the interventions, the FBR recovered additional Rs. 25 billion in the sugar sector (July-December 2024-25) and Rs. 12.8 billion in the cement sector (July-June 2024-25) by deploying the real-time production monitoring.

Meanwhile, enforcement on retail deepened, with POS reaching more than 40,000 installations and covering 38 percent of Tier-1 (big) retailers. Expedited dispute resolution realized Rs. 255 billion from legal settlements.

Targeted nudges sent to taxpayers increased admitted tax liability to Rs. 218 billion in 2024-25 from Rs. 160 billion in FY2023-24 (Rs. 58 billion increase). Faceless assessment in Customs strengthened neutrality and increased duty/taxes per-GD, e.g., at Dry Port Lahore (East), it rose from Rs. 25 million in April-June (2023-24) to Rs. 35 million in April-June(2024-25), showing a year-on-year (YoY) growth of 40 percent for the same period of the previous year, the report added.

Additionally, the FBR introduced the revamped peer-rated performance review system, rewarding high-performing and high-integrity officers. Collectively, these measures broadened documentation, reduced leakages and discretion, and translated into higher voluntary compliance and revenue.

There was a notable 26.3 percent increase in FBR tax revenues during 2024-25, which improved the tax-to-GDP ratio from 8.8 to 10.3. With the continued growth in tax revenues, it is anticipated that the Tax-to-GDP ratio will further improve in the coming years.

Resultantly, over the past 10 years, a positive change has been witnessed whereby the percentage composition of indirect taxes in FBR’s tax-to-GDP ratio dropped from 5.8 percent to 5.2 percent. There was a corresponding increase in direct taxes from 3.7 percent to 5.1 percent during the same period, the FBR report added.

Copyright Business Recorder, 2025