As Pakistan grapples with one of the worst economic crises of its history, the country’s policymakers and tax authorities are focusing their energy on collecting the maximum amount of tax from the existing taxpayers, instead of focusing evaders and on the collection of Gas Infrastructure Development Cess (GIDC).

According to data released by the Federal Board of Revenue (FBR), tax collections are likely to fall short of the target by Rs170 billion this fiscal year due to a decline in economic activities and the forex crisis. Experts believe the FBR’s tax collection is likely to be limited to Rs7,300 billion against the target of Rs7,470 billion.

“The economy is facing a budget deficit along with an external deficit. In order to cap these deficits, the government’s strategy is to collect additional taxes through a mini-budget along with increasing the petroleum levy,” added the experts.

Speaking to The Express Tribune, Foundation Securities Limited Head of Research, Muhammad Awais Ashraf said, “The policymakers and FBR are increasing the tax burden which will further agonise the low-income group, already bearing the burden of high inflation. In the short-run, however, the collection of GIDC could bridge the fiscal gap the government is targeting to raise through the mini-budget.”

“The government’s dependence on organised sectors, for tax collection, is increasing, which is also increasing the cost of industries and the manufacturing sector,” he said. “In order to meet the budget targets, there is a need to bring non-tax paying sectors into the tax net and increase collection from the tax paying sectors that paying are less than their potential,” said Ashraf.

The tobacco industry, for example, is one of the top sectors burdening the national exchequer due to illegal trade and tax evasion, and is also limiting the business of the tax-paying organised industry.

Analysts believe that two of every five cigarettes in Pakistan are sold via tax evasion, making Pakistan one of the top countries for illegal cigarette trade in Asia, he explained. The illegal trade of cigarettes is causing an annual loss of Rs100 billion to the national exchequer.

Ashraf said, “A track and trace system has been implemented to eliminate tax evasion from five major sectors including cigarettes, cement, sugar, fertiliser and petroleum. If this system is effectively implemented in the entire cigarette industry, tax collections will increase.”

Published in The Express Tribune, February 9th, 2023.

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