Auditor General of Pakistan (AGP) has made astonishing disclosure that the tax-to GDP ratio of Federal Board of Revenue (FBR) reached its lowest level on the conclusion of the international donor's funded Tax Administration Reform Project (TARP). According to the latest report of the AGP for 2014-15, Pakistan is one of those countries which have the lowest Tax-GDP ratio in the world. Tax-GDP ratio had slightly increased in 2013-14 as compared to 2012-13.
A comparative analysis of the statistics regarding this ratio in the recent past has shown disappointing results. From 2009 to 2011 there was a steep fall and the ratio declined to 8.52 % of GDP. There was some increase in 2011-12 up to 9.07% while in 2012-13 it again decreased to 8.13%. It is worth mentioning that FBR initiated TARP in 2005, one of the main objectives of which was to improve tax to GDP ratio. When the project ended in 2011 the tax to GDP ratio reached its lowest level in more than two decades. It is also relevant to mention that as long back as in 1998-99, this ratio was 12.6 % ever highest in the history and, at that time, there was no concept of reforms agenda like TARP in FBR.
Referring to the reasons for low Tax to GDP ratio, AGP stated that tax-GDP ratio is one of the primary indicators used to gauge the health of a country's economy. Several possible reasons for the low tax to GDP ratio in Pakistan included narrow tax base; large undocumented informal sectors; small contribution in taxes from major sectors ie agricultural and services as compared to their share in GDP; low tax compliance; wide spread exemptions; absence of efficient tax system; structural deficiencies in tax administration system and weak audit and enforcement functions of the FBR. AGP suggested that the FBR to increase the tax to GDP ratio by broadening its tax base, and ensuring enforcement and compliance of law.