June 14, 2006	Wednesday	Jumadi-ul-Awwal 17, 1427

ISLAMABAD, June 13: Three major government's institutions have differed with each other over the finalization of country’s tax-to-GDP ratio, making the whole process of determining this ratio `dubious'.

This means that there is a lack of coordination/cooperation among the government institutions or difference in methodologies in determining the tax-to-GDP ratio. This also speaks about non-seriousness of the government towards making assessment of economic indicators.

The Economic Survey 2005-06 indicated the tax-to-GDP ratio at 8.9 per cent in the year 2004-05 on the basis of revenue collection of Rs588.4 billion. Interestingly, the survey carried a misleading figure of collection during 2004-05, as it stood at Rs590.4 billion instead of Rs588.4 billion.

If the survey methodology is adopted for the calculation of this ratio, the tax to GDP ratio should be in the range of 9.1 per cent on the basis of revised budgetary target of Rs704 billion in case the GDP size at market price stands at Rs7713.06 billion. However, the survey projected 9.2 per cent tax-to-GDP ratio in case the revenue collection reached to Rs710 billion by the end of June 2006.

On the other hand, the State Bank of Pakistan’s annual report 2004-05 pointed out that the tax-GDP-ratio had come down to nine per cent in 2004-05. However, there is no projection of the SBP for the current fiscal year, as the next annual report is likely to be released in next one or two months.

According to the Central Board of Revenue’s statistics, the tax-to-GDP ration stood at nine per cent during 2004-05 on the basis of reconciled revenue figure of Rs590.4 billion for the same year. For the outgoing fiscal year 2005-06, the CBR projected the tax-to-GDP ratio at 9.3 per cent in case the revenue realisation stood at Rs704 billion by the end of June 2006 and if the GDP size at market price stood at Rs7542.6 billion. Similarly, the CBR projected the tax-to-GDP ratio at 9.7 per cent for 2006-07, if the revenue collection stood at Rs835 billion, with a GDP size of Rs8613 billion. According to the Medium Term Development Framework (MTDF) 2005-10 of the Planning Commission, the tax-to-GDP ratio was reported at 9.6 per cent on the basis of revenue realisation of Rs581.2 billion during 2004-05, which stood much below the actual collection, with a GDP size of Rs6054 billion.

For the fiscal year 2005-06, the MTDF report projected the tax-to-GDP ratio at 9.9 per cent on the basis of a revenue collection of Rs641 billion, with a GDP size of Rs6474.7 billion. And for the year 2006-07, this ratio was projected at 10.2 per cent on the basis of revenue realisation of Rs707.3 billion, with a GDP size of Rs6934.3 billion.

All this showed that these institutions have adopted different calculation methods for working out the tax-to-GDP ratio.

The tax revenue in relation to GDP in Pakistan is low in comparison with many developing countries even with some Saarc-member countries. This remained stagnant at nine to 9.6 per cent during the last seven years. Pakistan's GDP was rebased to 1999-2000 from a two-decade-old base of 1980-81.

Analysts say all efforts to enhance the tax-to-GDP ratio should begin from equitable distribution of tax burden among various sectors according to their contribution towards economic cake. There is a need to expand taxation gradually to agricultural and service sectors, which will bring greater yields, besides plugging of tax evasion, they add.