Tax Revenue – Journal – DAWN.COM

The 29% growth in tax revenue collection by RBF in the first three quarters of the current fiscal year to March compared to last fiscal year is encouraging. But is it enough? Or does it represent the true fiscal potential of the country? A quick review of the disintegrated tax data published by the FBR for the period under review will confirm that the increase in revenue collection does not show an improvement in tax compliance and enforcement. It also does not give us hope that the FBR will succeed in meeting the improved fiscal target of over Rs6.1tr for the current financial year as agreed with the IMF in January. The bulk of the Rs4.38tr collected so far – 52% of total tax revenue – has come from a massive jump in imports fueled by surging domestic demand due to pro-cyclical policies pursued by the government during the first half of the exercise. As soon as imports began to slow and taxes on purchases of petroleum products were reduced, collection also began to show signs of decline in recent months. Indirect taxes – GST, customs duties, FED, etc. – constituting almost two thirds of the total collection are also a big question mark on the capacity and capacity of the tax system to increase revenue. Even a large part of direct taxes (on income) is levied by companies who are required to withhold a percentage of their transactions for RBF, or are collected at the import stage.

Tax revenues are the main source of the spending capacity of governments around the world. Pakistan’s inability to raise its tax-to-GDP ratio beyond 9% to 12% means the government would have limited ability to invest in essential public services and fund economic and social development. It is therefore not surprising that successive governments have had no choice but to go into debt to pay their growing expenses and finance the country’s development. Raising tax revenue for public investment and improving service delivery has been by far the country’s most fundamental challenge and a major cause of the economic difficulties we face today. Yet no government has dared to fix the RBF to improve tax governance, compliance and enforcement for fear of political backlash. Thus, Pakistan’s tax administration remains one of the most corrupt, unfair and inefficient in the world, despite several attempts to reform the system in the past. Expecting a lasting economic recovery without revamping the tax system and existing mechanisms makes no sense.

Posted in Dawn, April 2, 2022

Comments are closed.