Pakistan Reader# 731, 25 March 2024
Shamini Velayutham
In Focus
On 25 March, according to The News International, Pakistan faces a large number of “tax evasion” of around PKR 5.8 trillion per year, comprising 6.9 per cent of GDP. The tax compliance gap was estimated PKR 996 billion through smuggling. As per the presentation given by Prime Minister Shehbaz Sharif Special Investment Facilitation Council (SIFC) the tax evasion was calculated for about PKR 5.8 trillion annually on the basis of fiscal year data of 2022-2023. During the presentation, participants were told that oil was allegedly smuggled into Pakistan through Iran and other border areas. The tax evasion in the retail sector is estimated to be PKR 888 billlion, whereas in transport sector it is estimated PKR 562 billion, independent power producers (IPPs) were PKR 498 billion, smuggled prone items were calculated for PKR 355 billion, and real estate was estimated PKR 148 billion annually. The tax evasion of the ‘others’ category was estimated at around PKR 1.607 trillion annually.
Meanwhile, the IMF in its Diagnostic Report found that the policy level tax gap was not on the larger side, however it could reach a maximum of 12.9 per cent of the GDP. The presentation further elucidated that the compliance gap flowed between the total revenues and expenditures. The federal tax revenues marked at 9.1 per cent of the GDP, whereas the federal non-tax revenue was at 1.2 per cent of GDP. Around 1 per cent of the provincial taxes were contributed to the GDP. The revenues marked around 11.4 per cent of the GDP. On the expenditure side, the federal expenditure to the GDP is estimated to be around 12.9 per cent, whereas the provincial expenditure totaled around 6.1 per cent. Therefore, the total expenditure is estimated around 19 per cent of the GDP. Nevertheless, there is a gap of 7.6 per cent of GDP prevails between the total revenues and expenditures of the country. According to an independent economist, the tax evasion, so called fiscal gap is rendered through borrowing from the domestic and external avenues, thus pushing the country into a debt trap. With the volatile fiscal position, the government is aiming to restrict the FBR through “Federal Policy Board, separation of Tax Policy Office, joint valuations, separation of Customs and Inland Revenues, collaboration with Nadra, PRAL restructuring, digital invoicing, SWAPS, Tajir Dost Retailers Scheme, documentation law and modern governance structure and oversight boards.”(Mehtab Haider, “Tax collection gap stands at whopping Rs5.8tr in Pakistan,” The News International, 25 March 2024)
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