Enhancing Tax-to-GDP ratio crucial for economic stability, Says FBR Chairman

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial has emphasized need to improve Tax-to-GDP ratio.

During his visit to the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday, the FBR Chairman agreed with LCCI President Mian Abuzar Shad on the need to reduce sales tax, corporate tax, and income tax rates in Pakistan. However, he emphasized that these reductions would only be feasible if the taxation system effectively captures revenue from all economic segments.

Rashid Mahmood Langrial said that Pakistan’s current tax-to-GDP ratio stands at 10.3 percent, which is below the required level. He underscored that the sales tax-to-GDP ratio is just three percent, whereas it should be at least five percent.

The FBR Chairman said that Pakistan has around 67 million employed or job-seeking individuals. Among them, the top one percent of earners, estimated to be 670,000 individuals, should contribute significantly to income tax. However, only 200,000 individuals are paying the correct amount of taxes, while many others are either under-filing or avoiding their fair share. If accurately taxed, the potential revenue from these individuals could amount to Rs.1.7 trillion.

He emphasized that to stabilize the economy, Pakistan’s tax-to-GDP ratio must be increased to 14 percent. The FBR Chairman mentioned that the FBR has introduced a Transformation Plan aimed at enhancing efficiency. “With government support, the FBR is undergoing reforms and restructuring, and soon it will emerge as a significantly improved institution,” he added.

The FBR Chairman also highlighted the positive developments, such as an increase in formal imports in November and the reorganization of the Customs Enforcement Wing. He said that in the past, around Rs.35 billion in tax refunds were issued annually for fast-track cases but in the current month alone, refunds worth Rs.70 billion have been disbursed.

LCCI President Mian Abuzar Shad said that the business community is willing to pay taxes but overly complex tax system is a major obstacle to expanding the tax net. He expressed concerns over issues like frequent audits, the FBR’s access to bank accounts and surcharges, which discourage businesses from formalizing their operations.

Mian Abuzar Shad presented data highlighting the FBR’s collection in the fiscal year 2023-24, which stood at Rs.9,311 billion. He said that direct Taxes were Rs.4,530 billion, Customs Duty Rs.1,104 billion, Sales Tax Rs.3,098 billion and Federal Excise Duty (FED) Rs.577 billion.

He said that despite the business community’s significant contribution to tax revenue, the targets for the current fiscal year set at Rs.12,970 billion appear unrealistic. The breakdown of these targets includes Rs.5,512 billion in direct taxes, Rs.1,591 billion in customs duty, Rs.4,919 billion in sales tax and Rs.948 billion in FED.