ISLAMABAD, June 4: The tax-to-GDP ratio has declined to 9 per cent in 2004-05 from the 9.4 per cent of last year, says the Economic Survey released on Saturday. The survey says that the tax revenue in relation to GDP has remained stagnant at 9 to 10 per cent during the last five years.

The government had recently projected to raise the tax-to-GDP ratio to 10.5 per cent by the year 2009-10. The decline in the ratio calls for a greater deal of effort to widen the tax base by mobilizing additional resources to bring this ratio at par with other countries, which were more or less at the same levels of economic development stage.

Pakistan’s GDP was re-based at 1999-2000 from a two decades old base of 1980-81.

According to the report, during the last five years, tax collection has increased by more than 70 per cent to Rs590 billion expected to be collected in 2004-05 against Rs346.6 billion in 1999-2000.

The revenue deficit — the difference between total revenue and total current expenditure — has been narrowed from 3 per cent of the GDP to 0.2 per cent, which will increase national savings and thus reduce the country’s dependence on foreign savings to finance domestic investment.

The share of direct taxes in total taxes decreased to 31.4 per cent in 2004-05 from 32.5 per cent in 1999-2000. However, the share of indirect taxes increased to 68.6 per cent in 2004-05 from 65.5 per cent in 1999-2000.

According to the report, the pace of change in the tax structure, particularly in indirect taxes has gained considerable momentum over the last five years. The share of customs collection declined to 26.1 per cent in 2004-05 from 33 per cent in 1999-2000, while share of central excise declined to 11.5 per cent in 2004-05 from 31 per cent in 1999-2000.

The share of sales tax during the period increased dramatically from 36.3 per cent to 62.5 per cent of indirect taxes in 2004-05.

The survey expressed the hope that an improved tax structure would reduce the deadweight loss associated with raising a given amount of revenue and a reduction in the relative share of trade taxes and increase in the relative shares of taxes on income and consumption could be taken as evidence of an improvement in tax system.