Pakistan Needs to Increase Tax Compliance, Not New Taxes: World Bank

99 Pct People Can’t Be Served On 1 Pct People’s Tax, Says PM Khan in Address to the Nation

PKONWEB Report — Prime Minister Imran Khan, in a video message to the nation this week, said 99 percent of people could not be served with the tax which only one percent people pay.

He urged all Pakistanis to take advantage of the assets declaration scheme, and save themselves from any kind of trouble. The deadline of the scheme is June 30.

“Today I want to speak with you on an important issue facing the country. Out of 220 million Pakistanis, only one percent are tax filers, which means this one percent Pakistanis are bearing the burden of the total 220 million,” Imran said in his video message.

PM Khan urges Pakistanis to avail tax amnesty scheme

Mr. Khan’s message comes as a World Bank project report revealed that Pakistan needs to increase tax compliance, not new taxes.

Pakistan’s current tax-to-GDP ratio is 12.6 per cent of the GDP, which according to the WB should be 23 per cent of the GDP.

The report said that neither the FBR is organized along functional lines nor does it have a clear hierarchical structure, the WB document said, adding FBR has a nationwide presence with more than 21,000 staff, of whom about two thirds work for the Inland Revenue Service (IRS) and one third for the Pakistan Customs. 

The WB document also said that the existing taxes have the potential to generate the amount the country needs– Rs10 trillion revenues annually – to take its tax revenue potential to 26 per cent of GDP if tax compliance were raised to 75 per cent.

Calling the 75 per cent tax compliance a realistic level of compliance for lower-middle-income countries, the Washington-based lender has revealed that Pakistan’s revenue gap has widened from Rs3.3 trillion to Rs5 trillion – 26 per cent of the size of its economy.

These details are included in the World Bank’s recently published document titled “Pakistan Revenue Mobilization Project”. The World Bank has prepared the project information document to approve a $400 million loan to FBR for tax reforms.

This will be the second full-scale attempt by the WB to reform the FBR in the past 14 years. Its earlier $150 million worth of Tax Administration Reforms Project badly failed to yield the desired results and the money went down the drain, according to The Express Tribune.

A media report says the FBR needs to collect around Rs870 billion in the last month of the current fiscal year (ending June 30) to meet the revised revenue target.

What is Leading to Huge Tax Losses?

World Bank believes that the FBR’s methodology to assess tax liabilities for some sectors like the electricity consumption bills for the steel sector is leading to huge tax losses.

The WB has suggested the government withdraw multiple exemptions and discounted rates to selected industries, economic actors, and economic activities like sugar, textiles and fertilizer industries; associations in the real estate sector and imports for infrastructure projects under the China-Pakistan Economic Corridor (CPEC).