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Tax-to-GDP declined: Dar presents 3yrs budget strategy paper to cabinet

Tax-to-GDP declined: Dar presents 3yrs budget strategy paper to cabinet

ISLAMABAD: Finance Minister Ishaq Dar presented budget strategy paper for 2014-17 to the federal cabinet, setting ambitious targets for reduction in debt build-up and fiscal deficit while conceding that the tax-to-GDP ratio has declined during the current year despite an increase in tax rates.

As per details, the minister informed the cabinet that even though tax collection had improved by more than 15 percent during this year, the tax-to-GDP ratio had dropped significantly.

The government had set a target to achieve the ratio of 10.9pc in the current year which had now been brought down to 10.5pc on the basis of the collection in the first 10 months and projected collection in the remaining six weeks.

Ishaq Dar said that this was despite the fact that the general sales tax on all products and services was increased by 1pc and withholding tax was also imposed on seven key sectors.

He informed that a number of measures for documentation of economy to broaden the tax base and increase the tax-to-GDP ratio announced in the budget were gradually withdrawn over the course of the fiscal year.

The strategy paper projected the ratio to grow to 11.3pc by the end of the next fiscal year, followed by 12pc in 2015-16 and reaching up to 12.7pc in 2016-17.

According to the paper, the government has set a target of 5.5pc GDP growth in 2014-15 which will be increased to 7pc and 7.2pc for the next two years. It was reported that the GDP growth rate this year was estimated at 4.14pc against a target of 4.4pc.

The document projected the public debt-to-GDP ratio at 60.2pc at the end of the current fiscal year, lower than the 61.3pc budget target. The target is to reduce public debt to 56.7pc of GDP in 2014-15, 53.2pc in 2015-16 and 49.8pc in 2016-17.

The foreign exchange reserves were $13.9 billion on May 13 and will increase to $19bn by the end of the next fiscal year, $22bn in 2015-16 and $22.5bn by 2016-17.

The budget paper put the current year’s investment-GDP ratio at 13.5pc and set a target of 16.5pc for the next year, 20.2pc by 2015-16 and 21pc by 2016-17.

The cabinet was informed that the inflation rate was expected to settle down at 8.5pc this year against a target of 8pc, but would remain stable at the same level during the next three years.

The government expects to achieve a consolidated fiscal deficit level of 5.7pc of GDP this year against the budget target of 6.3pc. The figure will be brought down to 4.8pc next year and stabilised at 4pc over the subsequent two fiscal years.