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Business Recorder
3 hours ago
- Business
- Business Recorder
Tax-to-GDP ratio: flawed debate
There has been persistent pressure on successive Pakistani Governments by policymakers, especially those affiliated with multilateral donor agencies, to increase the Percentage Tax-to-GDP ratio. It is true, that the fiscal deficit continues to increase. However, the assumption that it is a tax shortfall that grows the deficit needs to be challenged — Nadeem Ul Haque & Raja Rafi Ullah, The Odd Fascination with Tax-to-GDP Ratio (PIDE Knowledge Brief No. 78:2022) 'If we want lower taxes for growth, then spending must be curtailed so that governments won't need so much money. The next time you hear a politician promise another tax break for some special group of taxpayers, think how much that hurts the economy and you as a taxpayer. It's time to simplify the system and reduce its onerous impact that undermines economic growth' — Jack M. Mintz, the Palmer Chair of Public Policy, School of Public Policy, University of Calgary, Canada The recent claim by the Chairman of Federal Board of Revenue (FBR) that for the recently-ended fiscal year (FY) 2024-25 its tax-to-GDP ratio improved by 1.5 percent needs reconsideration [in FY 2024 FBR's tax-to-GDP ratio was 8.8 percent and not 9.5 percent, which was of total national taxes]. It is well-known that the debate over tax-to-GDP ratio in Pakistan has always been lopsided, failing to take into account the fact that the Pakistani nation remains the most heavily taxed in the entire region. Adding insult to injury, the citizens in return even do not get clean drinking, what to speak of free education, decent healthcare, affordable housing/transport and social protections like universal pension for all, out of taxes paid by the citizens. In federal tax collection by the FBR, there has been an overwhelming reliance on indirect taxation [even under the garb of direct income taxation through presumptive and minimum tax regimes through withholdings on a number of transactions having no nexus with income], without evaluating its impact on the economy and life of the less privileged sections of society. This flawed tax policy has been contributing towards the rich-poor divide as well expanding inequalities in income/wealth distribution. In the face of declining income tax contribution in GDP of less than 3 percent (after excluding indirect ones levied under Income Tax Ordinance, 2001), the finance minister of successive regimes — civil and military alike — and Revenuecracy have been making tall claims about 'impressive' (sic) increase in taxes before the International Monetary Fund (IMF) and elsewhere. The reality of this 'impressive' performance has been exposed in various columns by these scribes. However, the IMF and World Bank in the past kept mum, as they were party to portraying all-good 'projection saga' during the era the Uncle Sam needed Pakistan; first for dismemberment of the then USSR and later for imposing New World Order in the name of 'War on Terror' (sic). Back in 1995, the then Prime Minister, Nawaz Sharif, claimed during a meeting, held in Washington on October 21, 2015, with that time Managing Director of IMF, Ms. Christine Lagarde, 'We have achieved the highest tax-to-GDP ratio and Pakistan's economy has been stabilising due to prudent policies of my government'. This claim was diametrically opposite to what was stated by the then Auditor General of Pakistan (AGP) in his report making 'astonishing disclosure' that the tax-to GDP ratio of FBR 'reached its lowest level on the conclusion of the World Bank funded Tax Administration Reform Project (TARP)'. It was strange that in the presence of report of AGP, our Prime Minister, his finance minister and other 'financial experts' were trying to convince the IMF that 'all is well'. Nawaz Sharif on assuming the power for the third time as prime minister gave unprecedented tax waivers and concessions to the non-filers and tax evaders—even then, his amnesty schemes miserably failed. It could only yield Rs. 1.3 billion! In these columns efforts have been made to explain reasons for the poor tax collection. However, the citizens for the last many decades rightly raise the question, 'Do you know how rulers play havoc with the taxpayers' money'? They insist that we must calculate cost to national exchequer in providing tax-free perquisites and benefits to indomitable militro-judicial-civil-complex and public office holders in the form of palatial residences, army of servants, expensive cars, golf courses, rest houses etc. They call on first ending this colossal wastage of funds and money spent on fruitless foreign tours, state banquets etc. and then debate the issue of low tax-to-GDP ratio. Although in these columns a detailed roadmap for reforming the existing tax system and raising taxes to the level of Rs 30 trillion is presented, the self-styled stalwarts and wizards sitting in Ministry of Finance (MoF) and FBR want 'advice' and 'assistance' from IMF and World Bank despite. Needless to say, they miserably failed in the past to reform tax system. The situation can aptly be described what great Urdu poet Mir Taqi Mir said in the following couplet: Mir kya sada hein beemar howe jis key sabab, usi attar key londey sey dawa letey hein (What a simple soul is Mir; he seeks cure from the healer's boy who is the cause of his ailment). It is tragic that in a country where billions of rupees are made in speculative transactions in real estate and shares, tax-to-GDP ratio has been pathetically low hovering around ten percent for over a decade. Those who matter in the land are least bothered to tax undocumented economy and counter benami transactions. The mighty sections of society are engaged in these transactions and FBR being their handmaid has no intention to tax them. The definition of the term, 'business' given in section 2(10) of the Income Tax Ordinance, 2001, covers 'adventure in the nature of trade'. However, our tax machinery is sitting idle causing enormous loss to the national exchequer by not bringing adventures in the nature of trade (speculative transactions) in real estate and shares into tax ambit. The elected representatives (sic), in fact, clipped the power of FBR to tax speculative transactions in real estate as adventure in the nature of trade by including immoveable property in the definition of 'capital asset' through Finance Act, 2012 with effect from tax years 2013. Earlier, they have been giving undue tax exemptions on gains arising on speculative transactions in shares and stocks. Higher tax-to-GDP ratio in industrialised countries is primarily due to the higher level of revenue from social security, payroll taxes, corporate taxes and taxes on domestic consumption while taxes collected from international trade and non-tax revenue are lower. In contrast, in Pakistan the major portion of revenue comes from indirect taxes, particularly taxes on international trade and domestic consumption, while direct taxes have a pathetic share [4.3 percent of GDP in FY 2024 that included 50 percent pass through withholding taxes]. The extending of extraordinary tax-free benefits to the powerful classes, failure to tap actual tax potential, indulgence in wasteful expenditure and funding of inefficient public sector enterprises are continuously pushing the country to more and more expensive borrowings — both internal and external. The unrelenting huge fiscal deficit and rising quantum of debt are the major source of macro-economic imbalances over the last many years. Making the things worse, the growth-retarding tax policy is playing havoc with stagnant economy. Sole stress on oppressive indirect taxes is not only widening the rich-poor divide, but has also failed to enable Pakistan to reduce even revenue deficit—we are not mobilising enough to meet current expenditure. The question is: where does the fault lies? Even the World Bank-IMF funding and 'guidance' has failed to bring desired results. Who is responsible for the prevailing pathetic state of affairs? Our debt burden has increased monstrously, fiscal deficit is simply unmanageable, inflation is crushing the poor, taxes are evaded and avoided by the rich and whatsoever is collected is wasted by the rich and mighty. What a tragedy that the elites (ashrafiya) not only evade taxes but also thrive at taxpayers' expense. They are the de facto beneficiaries of all the State's resources—generated mainly by the suppressed land-less tillers and diligent industrial workers. Pakistan is not a poor country — the State's kitty is empty because of colossal wastage of taxpayers' money on unproductive expenses (perks and perquisites of ruling elites) and non-exploitation of vital natural resources as well unwillingness of the rich to pay income tax. The absentee landowners (they include mighty generals who have been allotted State lands under one pretext or the other during the last many decades) have been resisting proper personal taxation on their enormous income and wealth. An unholy anti-people trio of indomitable militro-judicial-civil complex, inefficient politicians and greedy businessmen—controlling and enjoying at least 90 percent the State resources—contribute below 1 percent towards national revenue collection but is beneficiary of 90 percent of available national resources. The existing exploitative, rotten, regressive, ill-directed and unfair tax system is rapidly widening the existing divide between the rich and the poor. The lack of political will to tax the rich and the mighty remains our dilemma — not scarcity of resources. Equity demands higher taxes from those who have higher income and wealth, but in Pakistan since the first martial law all fiscal policies have decreased tax burden on the rich and increased its incidence on the poor. Pakistan's tax-to-GDP ratio at FBR level alone can rise to 20 percent, if we bring 5 million ultra-rich into tax net, heavily tax speculative transactions in real estate (it will promote construction industry as prices of land will come down), tax all speculative deals at stock exchanges (it will induce genuine investment in companies, withdraw all tax-free perquisites given to militro-judicial-civil complex and public office holders and confiscate untaxed assts. The existing tax system is highly unjust. It protects the rich and mighty having monopoly over economic resources. The common people are paying an exorbitant sales tax of 18 percent (in fact 35-55 percent on finished imported goods after mandatory value addition and income tax at source) on essential commodities as well as Rs 80 per litre as petroleum and environment levies on petrol/diesel but the mighty sections of society such as big industrialists, landed classes, generals and bureaucrats are paying no wealth tax/income tax on their colossal assets/incomes. Our present tax revenue potential, if monstrous black economy is dealt with iron hand, is not less than Rs 30 trillion provided that the existing tax base is made wider and equitable, black economy is discouraged, tax machinery is completely overhauled and exemptions and concessions available to some privileged sections of society are withdrawn. However, this is not possible without simplification of the tax system [FBR, tax potential & enforcement—I, Business Recorder, March 5, 2021, and FBR, tax potential & enforcement—II, Business Recorder, March 7, 2021]. Copyright Business Recorder, 2025
Business Recorder
a day ago
- Business
- Business Recorder
No integration with system: FBR orders hefty fines on corporate taxpayers
ISLAMABAD: The Federal Board of Revenue (FBR) has ordered the imposition of huge penalties on corporate sales taxpayers across Pakistan, who failed to integrate with the board's system. Resultantly, field formations are issuing penalty notices to the corporate sales taxpayers despite the FBR's commitment of extension in deadline for corporate taxpayers during last meeting of Senate Standing Committee on Finance. For corporate registered persons, the date of registration/integration was July 1, 2025 and non-corporate registered persons August 1, 2025. FBR extends tax returns filing deadline to Aug 4 According to the FBR's recent instructions to the field formations, 'I am directed to state that the worthy Director General (IT&DT) has issued instructions regarding issuance of penalty notices to taxpayers who have as yet not integrated themselves with FBR as per provisions of Rule 150Q of the Sales Tax Rules, 1990 read with SRO.709(I)/2025. The matter may please be accorded top priority in accordance with the above and Board's ongoing drive of integration of un-registered taxpayers, the FBR's instructions added.' During the last meeting of Senate Standing Committee on Finance, the FBR has assured to extend deadline for integration of sales taxpayers. The FBR has decided to implement policy of sales tax integration in phases and sector wise. Similarly, non-corporate taxpayers would be given extension in this regard. The FBR had assured the committee that the FBR will soon issue sales tax explanatory circular to address all concerns of the business community. Meanwhile, the FBR has officially reconstituted the committee responsible for evaluating applications related to the integration of registered persons under the Sales Tax Rules, 2006. A formal notification in this regard was issued by the FBR on Monday/28.07.2025. The move comes amid growing anticipation within both the corporate and non-corporate sectors for an extension in the deadline for sales tax integration. Tax professionals have indicated that businesses are awaiting clarity from the FBR regarding future compliance timelines. According to the new notification, the FBR has rescinded its earlier directive issued under Notification (IR-Ops)/2025-R dated 16.06.2025. The reconstitution exercise has been carried out under the powers granted by the Sales Tax Act, 1990; the Sales Tax Rules, 2006; the Income Tax Ordinance, 2001; and the Income Tax Rules, 2002. The newly-formed committee will now oversee the evaluation process of licence applications for integration. It will be chaired by Mr. Abid Mehmood, Director General (IT & DT), with the other members. The committee's Terms of Reference (ToRs) include: Scrutinising submitted documents and determining eligibility for new registrations; Reviewing additional documents in previously approved registrations under updated rules; Preparing Requests for Proposal (RFP) in line with the new regulations; Assessing complaints and making recommendations for licence cancellations to the FBR. The FBR confirmed that this notification replaces all prior orders concerning this matter and has been issued with the approval of the competent authority. The step reflects FBR's continued efforts to streamline tax administration and promote transparent integration processes. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
FBR forms body to review licences for ST integration
ISLAMABAD: The Federal Board of Revenue (FBR) has reconstituted committee to evaluate applications for grant of licence for integration of registered persons under the Sales Tax Rules, 2006. In this regard, the FBR has issued a notification here on Monday. When contacted, a tax expert said that both the corporate and non-corporate sectors are waiting for the extension in time period for sales tax integration. According to the notification, the FBR has superseded Notification (IR-Ops)/2025-R dated June 16, 2025. IMF links 4pc further ST abolition to 50,000 new ST registrations: FBR In exercise of powers conferred under Sales Tax Act, 1990, Sales Tax Rules, 2006, Income Tax Ordinance, 2001 and Income Tax Rules, 2002, the FBR has reconstituted the committee to evaluate applications for grant of licence for integration of registered persons under the Sales Tax Rules, 2006. The committee shall comprise of the following members: Abid Mehmood, Director General (IT & DT) would be Chairman of the committee. Arshad Nawaz Chheena, Chief (Revenue-Operations), Member; Aamar Javed, Chief (Systems), Member/Secretary of the Committee; Abdul Hameed, Secretary (STB), Member; Abid Naeem, CIO, PRAL, Member and Mehboob-ur-Rehman, Sr Manager (Development), PRAL would be Member of the committee. The terms of reference (ToRs) of the committee shall be as follows: (i); To scrutinize the documents, evaluate the eligibility of the applicant for new registration. (ii); To scrutinize further documents required as per new rule in cases where registration hasearlier been granted. (iii); To prepare Request for Proposal (RFP) as per new rules and cope. (iv); To evaluate the complaints and to make recommendations to the Board for cancellation of licence. This notification is issued with the approval of the competent authority and supersedes the already issued notifications in this regard, the FBR added. Copyright Business Recorder, 2025
Express Tribune
24-07-2025
- Business
- Express Tribune
Vanaspati manufacturers threaten closure over tax
Listen to article The Pakistan Vanaspati Manufacturers Association (PVMA) has warned of an indefinite nationwide shutdown of ghee and cooking oil production if the Federal Board of Revenue (FBR) does not withdraw controversial tax enforcement powers within 48 hours. At a press conference following the association's General Body meeting in Karachi, PVMA Chairman Sheikh Umer Rehan said the strike was unanimously approved by members. However, the strike is on hold for two days due to ongoing FPCCI-FBR talks facilitated by the Special Investment Facilitation Council (SIFC) in Islamabad. "We have delayed the strike by 48 hours, hoping that negotiations between FPCCI and FBR under SIFC supervision will bring results. If not, we will halt production across Pakistan," Rehan warned. According to a statement released on Wednesday, PVMA opposes new amendments in the Income Tax Ordinance in Budget 2025-26, particularly Sections 40B, 40C, 21S, and 8B. These allow FBR to monitor private businesses and grant power to arrest alleged defaulters without warrants under Section 37A. Rehan said these powers mirror the National Accountability Bureau (NAB), raising fears of arbitrary interference in commercial activities and would lead to harassment. "If NAB-like officers monitored the FBR chairman, could he work freely? Then how can we work under similar pressure?" he asked. PVMA highlighted its economic role, saying the sector is the second-largest taxpayer after petroleum. Rehan said the industry pays 35% tax on imports and 10% on sales but still faces raids and arbitrary rules. He also claimed that utility stores owe the industry over Rs6.5 billion, while billions in sales tax refunds remain unpaid. He added that the sector lacks capacity for immediate compliance with the newly introduced digital invoicing requirement. "Digitisation takes time and investment. We can't do it overnight," he said. The PVMA said it prefers dialogue but warned that if the government fails to act, it will proceed with a shutdown.
Business Recorder
21-07-2025
- Business
- Business Recorder
President NKATI praises KCCI for organising successful protest
KARACHI: President of the North Karachi Association of Trade and Industry (NKATI), Faisal Moiz Khan has appealed to Prime Minister Mian Shehbaz Sharif and Field Marshal General Syed Asim Munir to assist in resolving the issues of the business community through their genuine representatives and with written assurances, so that the wheels of national industry can move forward without fear, and export consignments continue uninterrupted. He demanded the reinstatement of the Final Tax Regime for exporters. He expressed his gratitude to the leadership of the Karachi Chamber of Commerce and Industry (KCCI) for organizing a highly successful strike on the appeal of KCCI President Muhammad Javed Bilwani. He said this peaceful protest was a powerful way to make the government hear the voice of the business community. The unanimous protest was against the oppressive, unrealistic, and business-unfriendly tax measures imposed through the Finance Act 2025–26. He paid heartfelt tribute to the KCCI leadership for the historic success of the strike held on Saturday, July 19. Faisal Moiz Khan stated that the business community had repeatedly conveyed its concerns to the government and also submitted positive suggestions through the Karachi Chamber. Unfortunately, those suggestions were not taken seriously. He particularly criticized sections 37A and 37B of the Income Tax Ordinance, which give authorities the power to arrest taxpayers and initiate cases without due legal process—an act he described as completely unjust and a means of creating a climate of fear. Additionally, he condemned the harsh penalties on cash transactions under Section 21(s), which remain a common business practice in Pakistan. Faisal Moiz Khan added that, shaken by the impact of the strike, certain government representatives and bureaucrats have launched campaigns against KCCI President Javed Bilwani, prominent trader leader Zubair Motiwala, and Lahore Chamber President Abu Zar Shad. Copyright Business Recorder, 2025
