Pakistan potential tax gap stands at PKR 3,000 billion
Jul 23, 2022
Islamabad [Pakistan], July 23 : Pakistan's Federal Board of Revenue chief Asim Ahmad has said that the potential tax gap stands at PKR 3,000 billion on an annual basis mainly in the shape of tax exemptions for powerful lobbies, massive tax evasion, and the inability of the machinery to collect due taxes.
"We have found that the total tax potential under the jurisdiction of the federal government stands at PKR 9,000 billion out of which the FBR collected PKR 6,000 billion so the tax gap was assessed at PKR 3,000 billion on a per annum basis," the FBR Chairman shared the outcome of tax analysis gap while addressing a Summer Camp arranged by Pakistan Tax Bar Association, The News International reported.
On the eve of the budget-making exercise, FBR was assigned to conduct the first-ever formal study to assess the 'tax gap' keeping in view the jurisdictions of the federal government under the 1973 Constitution for the imposition of taxes.
Explaining the process of study, FBR chief said that after hiring a consultant they started this and so far found that out of the total size of the economy to the tune of PKR 67 trillion, the federal government levied a sales tax of PKR 32 trillion and then calculated income tax, customs duty and federal excise duty potential.
He further said that there was a tax gap of PKR 3,000 billion out of which PKR 1,800 billion was a policy gap, as it occurred mainly because of tax exemptions/incentives provided by the FBR to different sectors, reported The News International.
Ahmad noted that there is a remaining compliance gap of PKR 1200 billion. The chairman said that if the FBR abolished all kinds of tax exemptions and ensure full compliance the tax to GDP ratio could touch 14 per cent with a maximum collection of PKR 9,000 billion on an annual basis.
He said that the tax to GDP ratio was the lowest in the country but if full tax potential was collected to the tune of PKR 9,000 billion even then tax to GDP did not cross the 14 per cent mark.
"Out of total taxation measures of PKR 545 billion, 80 per cent tax measures have been taken on the direct taxes side," Ahmad said and added that there would be a shift after the year 2006 when the direct taxes would be the major revenue spinner compared to indirect taxes. It is now going to happen after 16 years as the contribution of direct taxes will be on the higher side than indirect taxes.
The reliance had shifted to indirect taxes because its collection was easy but now effort was made to bring in a shift, he said as quoted by The News International.
