FBR Set to Launch Inland Revenue Service Strategic Reform Plan Tomorrow

FBR Set to Launch Inland Revenue Service Strategic Reform Plan Tomorrow in 2022

The Inland Revenue Service Strategic Reform Plan, 2021-2025 was created to address increasing the tax-to-GDP ratio.

The Federal Board of Revenue (FBR) is expected to unveil the plan on Wednesday (tomorrow).

The plan revealed that the FBR’s assessment concluded that it faces significant challenges in its domestic resource mobilization effort, which has kept its tax-to-GDP ratio consistently below 10%.

Like most developing countries, Pakistan faces the challenge of a low tax-to-GDP ratio due to outdated and inefficient tax administration systems and processes. In an ever-changing and fast-paced global landscape, it is critical for the tax machinery to function effectively and to employ sophisticated computer and communications technology to bring difficult-to-tax sectors into the tax net.

Pakistan’s revenue performance is subpar, with the tax-to-GDP ratio falling from 12.9 percent in 2017-18 to 11.4 percent in 2019-20.

Comparable countries in our region have averages ranging from 14 to 17 percent. Although the economy has grown in recent years, tax performance has stagnated or increased at a slower rate. This contradicts the widely held belief that revenue performance improves as countries become wealthier.

Furthermore, the tax-to-GDP ratio remains below the tipping point required to achieve the SDGs and, more broadly, to ensure robust and stable growth. There is mounting evidence to support the hypothesis that a tax ratio of less than 15% makes it difficult to achieve long-term growth. Indeed, higher levels of commitment may be required to achieve broad-based sustainable development outcomes.

According to estimates, tax revenues are only 62.9 percent of their potential. This is because of a limited tax base, fewer registered taxpayers, and a low filing rate. The main underlying causes are the complexity of the tax system, the high level of informality, low tax morale, and poor tax administration.

Pakistan’s tax revenue relies heavily on federal taxes (about 90 percent of total tax revenues are mainly from indirect taxes). For example, indirect taxes accounted for approximately 60% of the Federal Board of Revenue’s tax revenues. Three thousand three hundred sixty-one billion in the fiscal year 2017. Most direct taxes come from businesses (corporate income tax) and property-related taxes, with a very small share coming from personal and agriculture income taxes (AIT).

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