Pakistan does not have to impose new taxes or hike tax rates because the existing taxes have the potential to achieve taxation targets, the World Bank said in its paper on Pakistan’s revenues.
The targeted revenues of Rs10 trillion annually could take the country’s tax revenue potential to 26 percent of the GDP if tax compliance was raised to 75 percent, the lender said in its recently published document titled Pakistan Revenue Mobilization Project. The bank has called the 75 percent tax compliance a realistic level of compliance for a lower-middle-income country like Pakistan. The Washington-based lender has revealed that Pakistan’s revenue gap had widened from Rs 3.3 trillion to Rs 5 trillion, which was 26 percent of the size of its economy. The World Bank prepared the project information document of $1.5 billion to approve a $400 million loan for tax reforms in the country. The document states that Pakistan’s tax authorities were currently capturing only half of the revenue potential and the gap between actual and potential receipts was 50 percent. As per the last fiscal year, Pakistan’s tax-to-GDP ratio stood at 13 percent of the GDP.
International lender says country only has to increase tax compliance to 75 percent to take tax revenue potential to 26 percent of GDP
The bank’s assistance of $400 million for the revenue mobilisation project would be implemented by the Federal Board of Revenue (FBR), targeting to contribute an increase in the domestic revenue by broadening the tax base and facilitating tax compliance.
The $400 million credit for the project would come from the International Development Association (IDA), a World Bank affiliate. The report advises for improvement in tax recovery and promotion of a healthy tax culture. The World Bank believes that the FBR’s methodology to assess tax liabilities for some sectors is leading to huge tax losses.
The government recently removed the FBR chairman due to poor performance of the tax authority.