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‘Plugging loopholes and consistent tax policy must to raise tax-to-GDP ratio’

‘Plugging loopholes and consistent tax policy must to raise tax-to-GDP ratio’

Report compiled by Customs, Petroleum Ministry and AGP says revenue collection can be doubled by preventing revenue losses, consistent tax policies and controlling tax evasion



ISLAMABAD: There is a dire need of developing consistency in tax policy and plugging loopholes in the system to increase tax-to-GDP ratio, said a report jointly compiled by Pakistan Customs, Petroleum Ministry and Auditor General of Pakistan (AGP).

The report added that tax-to-GDP ratio stands below 10% in the country and situation has remained the same since last couple of years as the country showed a lackluster performance with constant decline from 2003 to 2006 followed by nearly static ration for 2007 and 2008 a lonely spike in 2010 but showing an overall downward trend from the year 2003 to 2011.

But, India reflected a relatively consistent improvement in tax to GDP ratio since 2003 with a significant decline in 2008 and 2009. Similarly, Sri Lanka demonstrated a rising trend up until 2006 from 2003 which followed by a decline then.

It added, “Revenue collection of the country could at least be doubled by preventing revenue losses, resorting to consistent tax policies, and controlling tax evasion, abolition of unnecessary exemptions and concessions and issuance of frequent Statutory Regulatory Orders (SROs).”

The report highlighted that the low tax-to-GDP ratio had made the task of development and macro-economic stabilisation increasingly difficult as the taxes collected in the country were barely sufficient to cover debt servicing, defence and establishment expenditure and left no space for growth and development.

The report pinpointed some other reasons for low tax-to-GDP-ratio, including narrow tax base, mass scale unemployment, exclusion of women from active economic activity, illiterate or semi-literate population and non-payment of taxes by the affluent.

“Similarly, due to loopholes improper implementation of law to ax the wealthy elites, successive governments have been resorting o indirect taxes mainly being collected from the already heavily taxed poor of the country,” the report stated, adding, “Some socioeconomic issues, including worsening law and order condition, terrorism, poverty, diseases, and natural disasters have also contributed their due role in low tax to GDP ratio,” it added.

The tax-to-GDP includes federal taxes, surcharges, provincial taxes and levies and the target audience includes the public representatives, economic and fiscal policy makers, taxpayers and public at large whose daily lives are being affected due to low tax-to-GDP-ratio.