According to the latest study by IMF on ‘Unlocking Pakistan’s Tax Revenue Potential,’ there are some measures that Pakistan can take to double its tax revenues:

Concerted efforts to broaden tax bases

Strengthening tax compliance

Eliminating distortionary tax expenditures

Rationalizing the tax system in an efficient manner

The study concluded that Pakistan’s tax system does not promote efficiency and fairness. Despite the fact that following the 18th Amendment, with the provinces having significant revenue collection responsibilities now, the provincial governments’ own revenues still only amount to a meagre 6.8 percent.

What Measures Can Be Taken To Improve The Tax Collection?

According to the findings of the study, a properly designed federal and provincial policy, plus additional institutional reforms will improve tax revenue generation. The study has recommended Pakistan’s Ministry of Finance to establish a tax policy research and analysis unit that is going to function outside of the FBR in order to thoroughly improve the generation of tax revenue. It also states that tax revenues have been highly directed towards indirect taxes, which accounts for a whopping 63 percent of federal tax revenue.

Huge Disparity in Tax Revenue Generation In Different Industrial Sectors

For example, the agriculture sector of Pakistan only generates less than 0.1 percent of total tax revenues, but it accounts for 25 percent of the country’s GDP and employs nearly 45 percent of the total workforce. Additionally, the number of corporate income tax filers (or CIT) is 25,551 out of more than 60,000 companies registered for the CIT. The number of active CIT filers is merely 0.8 percent of the number of commercial and industrial electricity users. The number of entities that are registered for the General Sales Tax (GST) is only 178,190 out of about 1.4 million retailers.

These figures show that Pakistan’s tax system relies heavily on indirect taxes. Additionally, a severe lack of a ‘check and balance’ procedure to curb corrupt activities has also resulted in such a vast disparity in tax revenue generation. While the exact figures of monetary and tangible assets of individuals belonging to the bureaucratic club have not been disclosed, a foreign body operating outside of the FBR can certainly take steps for equitable tax regime for all industrial sectors in Pakistan.

Given below is a comparison of the time spent preparing and paying taxes in a typical Pakistan company, as opposed to those stationed in South Asia and other regions.

Pakistan: 594 hours

South Asia: 325 hours

OECD (Organization for Economic Co-operation and Development) countries: 175 hours

Looking at these differences, its high time that Pakistan made some serious changes to improve and streamline the tax system in Pakistan.