Govt wants tax-to-GDP ratio at 13 per cent: Budget for 2005-06
By Ihtasham ul Haque
ISLAMABAD, May 17: The federal government has directed the budget planners to make sure that the present tax-to-GDP ratio of 11.1 per cent rises to 13 per cent in the budget for 2005-06 so that more resources are available for social development. Informed sources told Dawn that the government wanted substantial increase in the resources for social development, particularly in the infrastructure, health and education sectors in the next budget.
President General Pervez Musharraf and Prime Minister Shaukat Aziz want the Central Board of Revenue (CBR) and provincial tax collection agencies to effectively recover taxes by plugging corruption and leakages. It was in this backdrop that the two leaders asked the budget planners to try to achieve 13 per cent tax-to-GDP ratio if not 17 per cent as witnessed in other developing countries.
Sources said that one of the major factors keeping the tax-to-GDP ratio low was the failure in checking the prevalent corruption in the federal and provincial tax collection agencies.
Even the $120 million funding provided by the World Bank for restructuring of the CBR has not borne quick results. The Bank wanted early reorganization and restructuring of the CBR in order to improve what was termed “still unsatisfactory” tax collection in Pakistan.
“The CBR’s share in tax-to-GDP ratio is 9.5 per cent, while provinces share is just 0.5 per cent which could not be increased even after more than 20 year,” a source said. He said that provinces were being asked to increase their share in taxes which were “too inadequate”. The current 11.1 per cent tax-to-GDP ratio includes 10.6 per cent of the federal government and 0.5 per cent of the provinces.
He said that the provinces were insisting on having more share in the National Finance Commission (NFC) award but were not ready to increase their resources through raising adequate level of taxes.
Now that the government is claiming 8.3 per cent GDP growth for the current financial year, questions are being asked that why did the CBR fail to collect fairly a large number of taxes? The CBR officials have informed the higher authorities that there will be about Rs590 billion tax collection, Rs10 billion more than the target of Rs580 billion set for 2004-05.
“But this is not acceptable to the federal authorities who are saying that since 1.7 per cent more GDP growth has been achieved over the target of 6.6 per cent set for 2004-05, the Rs590 billion figure is very low,” another source said.
He said that large scale manufacturing has increased by 15.4 per cent, services sector grew by 7.9 per cent, there were more imports and there was an unprecedented telecom growth, and under these circumstances, CBR could not collect required taxes. He said the issue would be taken up again during the next few top level meetings to be chaired by the prime minister and his advisor on finance Dr Salman Shah.
