Pakistan needs to enhance tax compliance instead of hiking tax rates: WB

Pakistan does not need to impose new taxes or hike tax rates because the existing taxes have potential to achieve taxation targets, the World Bank has said in its paper on Pakistan’s revenues, a private media outlet reported on Monday.

The targeted revenues of Rs10 trillion annually could take the country’s tax revenue potential to 26pc of GDP if tax compliance were raised to 75pc, the lender said in its recently published document titled Pakistan Revenue Mobilization Project.

The bank has called the 75pc tax compliance a realistic level of compliance for a lower-middle-income country like Pakistan in its document.

The Washington-based lender has revealed that Pakistan’s revenue gap has widened from Rs3.3 trillion to Rs5 trillion, which is 26pc of the size of its economy.

The World Bank has prepared the project information document of $1.5 billion to approve a $400 million loan for tax reforms in the country. The remaining $1.1 billion will be contributed by the government.

The document states Pakistan’s tax authorities were currently capturing only half of the revenue potential and the gap between actual and potential receipts is 50 per cent. As per the last fiscal year, Pakistan’s tax-to-GDP ratio stands at 13pc of GDP.

The bank’s assistance of $400 million for the revenue mobilization project would be implemented by the Federal Board of Revenue (FBR) targeting to contribute an increase in the domestic revenue by broadening the tax base and facilitating tax compliance.

The $400 million credit for the project will come from the International Development Association (IDA), a World Bank affiliate.

The report advises for improvement in tax recovery and promotion of healthy tax culture.

World Bank believes that the FBR’s methodology to assess tax liabilities for some sectors is leading to huge tax losses.

The government recently removed the chairman of the FBR due to the poor performance of the tax authority.