ISLAMABAD, Jan 9: The World Bank will provide a technical expert to the Central Board of Revenue (CBR) in reforming the taxation policies for achieving a quantum jump in tax-to-GDP ratio, which is the lowest in the region.
A senior tax official told Dawn on Monday that the World Bank expert was scheduled to arrive here within next two months to help the tax reforms team in raising the tax-to-GDP ratio.
The expert would provide guidance to both the CBR and the finance ministry to work out a detailed strategy for arresting the constant decline in tax-to-GDP ratio particularly, in income tax and sales tax and to enhance it to the level of other countries of the region.
This technical assistance, the official said, was part of Tax Administrative Reform Project (TARP), which is expected to be completed within next few years. Pakistan has made a commitment to the bank that due to the reform process, each year 0.2 per cent increase in tax-to-GDP ratio would be achieved.
Contrary to this claim, the CBR is actually facing a problem of declining trend in the over all tax-to-GDP ratio particularly, in the sales tax and income tax regime considered to be the future taxes of the country.
The tax-to-GDP ratio has fallen to nine per cent during the year 2004-05 from 9.4 per cent in the previous year, which is the lowest level recorded so far.
According to a recent study conducted by CBR, one of the major reason for low tax-to-GDP ratio is the narrow tax-base of almost all taxes, which needed reconciliation with data available at alternative sources.
Moreover, more than 50 per cent of corporate taxes originate from public sector corporations and few from private companies. Similarly, the main contributors of taxes are POL, telecom sector and utilities — electricity, natural gas— where again the public ownership is high.
Leakages and evasion due to the administrative weaknesses, taxpayers’ unfavourable perception of tax are also major concerns for low tax-to-GDP ratio.
It is patently clear that growth in a number of sub-sectors does not correspond to one-to-one basis with growth in CBR revenue. For instance, while the contribution of bumper crop of cotton has been immense as far as value-added in agriculture is concerned, but the revenue contribution of this source to GDP has been insignificant.
The same has been true of transport, wholesale and retail trade, and many other sub-components of GDP. Thus, to have any meaningful increase in tax-to-GDP ratio there is a need for widening of tax-base in sectors that are either outside the tax net or they are lightly taxed.
The statistics show that share of agriculture in GDP during the year 2004-05 is 20.2 per cent, while its share in taxes stood at 1.2 per cent; transport, storage and communication 13.8 per cent ( share in taxes 4.5 per cent); manufacturing 17.1 per cent (share in taxes 62.2 per cent); wholesale and retail trade 16.9 per cent (share in taxes 2.8 per cent), respectively.