Pakistan Tax Collection – Off the cliff but creeping up

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One of Pakistan’s chronic issues is low tax collection. Be it the rampant culture of corruption, bribery & smuggling or the swamps on undocumented economy. Our Tax collection at 10-11% of GDP is just not enough to pay for salaries, pension, debt, defence & development.

Under the IMF program, the core issue to address is increase the Tax to GDP ratio to ~15%. That plan has been hampered post covid. Our tax collection growth rate was 17% pre covid and has now fallen off the cliff. In May, the collection declined 31% Year on Year whereas in June it declined 21% Year on Year. Purpose of smart lockdown is to avert tax falls.

We can not be back to “sustainable” recovery path until we are back to double digit growth in tax collection. A feat looking less likely till December at least. Thus, the question why is the tax target to high anyways? Government should focus on direct taxes, documentation & digitization of the payment process meanwhile for a swift recovery post covid. Direct taxes are the way forward along with incentive based reforms in the FBR.

At this critical juncture, tax reforms require utmost attention & a comprehensive plan. Tax reforms is a process. Good mini-budgets are welcome.

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