The interim finance minister on Friday ordered to urgently prepare a roadmap to increase the dismally low tax-to-GDP ratio to nearly 13%, sending taxmen to the drawing board for finding ways to enhance collection by another Rs4.2 trillion.

In her maiden meeting at the Federal Board of Revenue (FBR) on tax matters, Dr Shamshad Akhtar termed the four million tax return filers too little to be proud off.

The FBR’s management was also expecting its former boss and now Finance Adviser Dr Waqar Masood Khan to join the meeting but he did not turn up along with the finance minister.

The FBR’s tax-to-GDP (gross domestic product) ratio was a mere 8.5% at the end of last fiscal year. Sources told The Express Tribune that Akhtar showed her dissatisfaction with the ratio and instructed the FBR to immediately make a plan to increase it by another 4% of GDP to around 13%.

At current year’s projected size of the economy, the 4% increase in the ratio translates into roughly Rs4.2 trillion, a 50% jump that the FBR cannot achieve without targeting the sectors that are considered “sacred” like agriculture, exports, real estate and traders.

The FBR has been given 48 hours to prepare the roadmap. Akhtar was of the view that Pakistan’s tax-to-GDP ratio should be around 22%. But in a country where most of the people live in poverty, the achievement of such a ratio may not be possible.

A Pakistani salaried person pays up to 35% of his income in income tax while a rich exporter pays just 1% in income tax.

“The caretaker finance minister emphasised the need for devising strategies to further enhance the tax-to-GDP ratio and broaden the tax base to maximise revenue collection,” said a statement issued by the FBR after the meeting.

She called for finding innovative ways to tax the untaxed sectors, it added.

The FBR briefed her about the number of tax return filers, which currently stood at around 4 million. The finance minister showed her dissatisfaction over the low number. But the FBR chairman said that when compared with less than 800,000 return filers a few years ago, the 4 million filers were impressive.

An interim report of the Reforms and Resource Mobilisation Commission (RRMC) revealed that there were 7.6 million registered National Tax Number (NTN) holders but merely 3.6 million filed income tax returns.

It indicated that the FBR failed to bring 4 million people to the tax network and enforce its writ.

The report highlighted that a large number of individuals got tax concessions, but they did not file tax returns in subsequent years, underscoring the need for strict enforcement measures.

Moreover, out of the 3.6 million return filers, 2.2 million were tax depositors and the remaining 1.4 million declared zero income.

In tax year 2021-22, the FBR collected Rs1.6 trillion in income tax. The RRMC’s report revealed “only a small fraction of taxpayers, 13,958 to be exact, contributed 75%, or Rs1.194 trillion, of the total income tax collection in FY22. The 13,958 individuals were equal to 0.39% return filers and only 0.005% of the total population.”

“When compared to India, the situation seems to be drastically different. In India, 90% of tax was paid by 22% of total filers, whereas in Pakistan, only 3.5% of filers contributed 90% of income tax collection,” said the report.

The FBR’s statement underlined that the finance minister stressed the need for making all-out efforts to achieve the ongoing year’s revenue collection target. Even if the FBR achieves the annual target of Rs9.415 trillion, the tax-to-GDP ratio will reach only 9%.

The FBR stated that its chairman gave a detailed presentation to the minister on the FBR’s revenue collection performance including the assigned targets for the current financial year and the strategy to achieve them.

He said that the FBR was able to collect Rs7.169 trillion in FY23 against the target of Rs7.640 trillion. The chairman told the minister that all efforts would be made to meet current year’s collection target of Rs9.415 trillion.

He also informed the caretaker minister about the procedural improvements being made to simplify the process of paying taxes in order to facilitate the taxpayers. He gave an update on the important initiatives of the FBR including the broadening of tax base, track and trace system and Point of Sales system whereby efforts were afoot to further enhance revenue generation.

Published in The Express Tribune, August 19th, 2023.

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