ISLAMABAD, June 8: The tax-to-GDP ratio has increased to 9.5 per cent in 2006-07 from the 9.2 per cent of last year, says the Economic Survey released on Friday.
The survey says that the tax revenue in relation to GDP has remained stagnant at 9 to 9.5 per cent during the last eight years.
The government recently projected to raise the tax-to-GDP ratio to 15 per cent by the year 2014-15. The increase in the ratio was mainly because of the higher growth of revenue, which stood at Rs835 billion to be achieved by end of the current year.
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 eight years, tax collection has increased by 141 per cent to Rs835 billion expected to be collected in 2006-07 against Rs346.6 billion in 1999-2000.
The revenue deficit (the difference between total revenue and total current expenditure) was at 0.2 per cent of GDP in 2005-06 compared to a deficit of 2.2 per cent in 2000-01.
It has further progressed towards revenue surplus of 0.6 per cent of GDP in 2006-07. Pakistan has attained revenue surplus first time in 2003-04 since 1984-85, when it recorded 0.8 per cent of GDP surplus.
During the last four years this is second time when revenue surplus is mobilised and in the remaining two years revenue deficit existed, though at an insignificant level, as a result of some unavoidable increase in committed expenditure heads.
Fiscal Responsibility and Debt Limitation Act 2005 envisages a revenue surplus starting from 2007-08.
The primary balance (total revenue minus non-interest total expenditure) was in surplus from 1999-2000 to 2004-05 but turned into deficit of 0.9 per cent of GDP in 2005-06 due to the increased spending on earthquake related activities. Primary deficit is projected in 2006-07 for similar reason.
The positive aspect of reforms is the structural transformation in the structure of taxes, which has undergone considerable changes since the 1990s. Firstly, the share of direct taxes in total taxes (collected by the CBR) has increased from 18 per cent to over 38.5 per cent in July-April 2006-07.
The share of indirect taxes declined from 82 per cent to 61.5 per cent during the same period. Even within the indirect taxes, dramatic changes have taken place.
The collection from custom duty used to account for 45 per cent of total tax collection and 55 per cent of indirect taxes in 1990-91, its share has now been reduced to 18.6 per cent and 32.3 per cent, respectively.
The share of sales tax increased at a tremendous pace from 14.4 per cent to 41 per cent of total taxes and from 17.6 per cent to 60.3 per cent of indirect taxes during the same period. Central excise duty’s share in total taxes and indirect taxes were 22.5 per cent and 27.5 per cent, respectively, in 1990-91. These have now been reduced to 8.3 per cent and 12.3 per cent, respectively, during the same period.