ISLAMABAD, Nov 12: The World Bank and the Asian Development Bank (ADB) have urged the government to remove structural weaknesses in Pakistan’s taxation system, especially by reducing high tax rates and removing their multiplicity.

Informed sources told Dawn that international donors did not believe that the much-needed local and foreign investment could be attracted without bringing more improvements in the overall tax structure of the country.

Weak tax administration, corruption, tax evasion, narrow and punctured tax base and complex and tedious tax system were some of the key issues which donors believed were causing problems to the government.

The sources said the donors also asked the government to lessen its dependence on indirect taxes and over-reliance on trade-related taxes.

Pakistan was told to improve its low and stagnant tax-to-GDP ratio so that the much-needed additional resource mobilization could be made possible.

They expected the government to allocate more resources for development. “If the defence expenditure is static for the last four years and there is a substantial reduction in the amount of debt servicing, then the government should provide adequate resources for development purposes,” a source said.

The government has informed the donors that due to undertaking of a number of tax reforms, all tax whitener schemes had been eliminated and tax survey and documentation exercise undertaken which added more than 234,189 new income tax payers and 34,000 sales tax payers to the tax base, sources said.

Besides abolition of wealth tax, there has also been a reduction of (federal and provincial) tax rates and penalties, the government told donors.

Also, a two-tier agricultural income tax was introduced and that the broadening of general sales tax had been streamlined to a major extent.

The sources said the government agreed with the donors that fiscal deficit had emerged as one of the major sources of macro-economic imbalances in Pakistan. At the same time, persistent slippages on both revenue and expenditure sides had contributed to mounting fiscal imbalances.

Donors believed that unsustainable fiscal deficit would continue to create problems for the government.

They were reportedly assured that fiscal deficit as percentage of GDP will decline to less than 3 per cent in five years, and to 4 per cent during the current financial year.

The government has informed the donors that over the next five years, Pakistan’s economy would be taken to 6 per cent plus growth mode from the current level of 4.5 per cent. Similarly, the per capita income was projected to rise by 46 per cent in the next five years — from $437 to $623.

The number of people living below the poverty-line was expected to shrink from the current level of 31.8 per cent to 23.8 per cent.