Govt eyes 13.5pc tax-to-GDP ratio in three years

Published December 25, 2024
Senator Saleem Mandviwalla presides over a meeting of the Senate Standing Committee on Finance and Revenue, in Islamabad on Dec 25, 2024. — Senate website
Senator Saleem Mandviwalla presides over a meeting of the Senate Standing Committee on Finance and Revenue, in Islamabad on Dec 25, 2024. — Senate website

• Senate committee debates new tax amendment bill; finance minister stresses need for strict enforcement of tax laws
• Shibli Faraz asks whether proposed tweaks should be classified as a money bill

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Tuesday announced the government’s plan to increase the tax-to-GDP ratio from the current 10 per cent to 13.5pc within the next three years, stressing that the proposed amendments to tax laws would improve tax collection and compliance in the country.

The minister made these remarks during a meeting of the Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla. The session was convened to deliberate on the Tax Laws (Amendment) Bill 2024 but was postponed due to a lack of quorum after a brief debate on sales tax.

Mr Aurangzeb underscored the need for strict enforcement of tax laws, questioning why many citizens were willing to pay taxes but reluctant to register. He emphasised that unregistered individuals would be brought into the tax net.

The finance minister also announced plans for the Federal Board of Revenue (FBR) to undergo full digitalisation to reduce human interaction and enhance efficiency. FBR’s performance will be reviewed as part of the tax transformation plan, and the second phase of “rightsizing” is expected soon.

He further stated that significant progress is anticipated in the next six months regarding the separation of the Tax Policy Unit from the FBR, a move aimed at ensuring a more transparent tax collection system. The proposed amendments, he said, are designed to ensure fair taxation based on individual incomes.

Bill classification

During the meeting, Leader of the Opposition Senator Shibli Faraz raised concerns over whether the proposed amendments should be classified as a money bill or an ordinary bill. In response, Secretary for Law and Justice Raja Naeem Akbar clarified that under Articles 73(2) and 75 of the Constitution, the bill falls under the category of a money bill.

Mr Faraz stressed the need to restore public confidence in tax authorities, asserting that no meaningful progress could be achieved without public trust. The finance minister outlined the government’s “People Process Technology” initiative, aimed at rebuilding trust and modernising tax systems.

He reiterated the government’s empathy towards the salaried class and stressed that efforts were underway to create a fair balance between different socioeconomic classes.

FBR Chairman Rashid Langrial revealed that of the 62,000 registered entities, only 42,000 are actively paying sales tax. He highlighted the ethical responsibility of paying sales tax, describing its evasion as more unethical than income tax evasion.

Mr Langrial noted that the amendments do not introduce new taxes but aim to address non-filing and under-filing issues. He explained that in cases of non-compliance, firms and their moveable goods would be seized. The disparity between income declarations and actual spending, he said, remains a significant challenge.

When Mr Faraz inquired about the potential impact of amendments on broadening the tax base, the FBR chairman predicted that the tax-to-GDP ratio could reach around 13pc over the next four to five years through increased revenues from sales tax, income tax and customs duties. He also emphasised the growing role of technology in improving sales tax registration and compliance.

The finance minister reassured the public that 95pc of citizens would not be affected by the new amendments. He also noted that provinces currently collect only 0.8pc to 0.9pc of taxes, while the FBR collects 1pc through the petroleum development levy.

Published in Dawn, December 25th, 2024

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

From hard to harder

From hard to harder

Instead of ‘hard state’ turning even harder, citizens deserve a state that goes soft on them in delivering democratic and development aspirations.

Editorial

Canal unrest
Updated 03 Apr, 2025

Canal unrest

With rising water scarcity in Indus system, it is crucial to move towards a consensus-driven policymaking process.
Iran-US tension
03 Apr, 2025

Iran-US tension

THE Trump administration’s threats aimed at Iran do not bode well for global peace, and unless Washington changes...
Flights to history
03 Apr, 2025

Flights to history

MOHENJODARO could have been the forgotten gold we desperately need. Instead, this 5,000-year-old well of antiquity ...
Eid amidst crises
Updated 31 Mar, 2025

Eid amidst crises

Until the Muslim world takes practical steps to end these atrocities, these besieged populations will see no joy.
Women’s rights
Updated 01 Apr, 2025

Women’s rights

Such judgements, and others directly impacting women’s rights should be given more airtime in media.
Not helping
Updated 02 Apr, 2025

Not helping

If it's committed to peace in Balochistan, the state must draw a line between militancy and legitimate protest.