Langrial for improving tax receipts

Reveals Rs3.1tr shortfall in sales tax, Rs2tr in income tax; says ratio must be 14%

LAHORE:

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial has agreed with Lahore Chamber of Commerce and Industry (LCCI) President Mian Abuzar Shad that the current sales tax, corporate tax, and income tax rates in Pakistan are excessively high and should ideally be reduced. However, he emphasised that any reduction in these rates can only be implemented if the country's taxation system is capable of effectively capturing revenue across all segments of the economy.

While addressing a meeting at LCCI on Tuesday, FBR chairman highlighted that Pakistan's current tax-to-GDP ratio stands at 10.3%, well below the required level. He pointed out that the sales tax-to-GDP ratio is only 3%, whereas it should ideally be at least 5%. The chairman also revealed a significant gap in tax collection, with a shortfall of Rs3.1 trillion in sales tax and Rs2 trillion in income tax.

FBR chairman noted that Pakistan has approximately 67 million employed or job-seeking individuals. Among them, the top 1% of earners, roughly 670,000 individuals, should be contributing significantly to income tax. However, only 200,000 of them are paying the correct amount, while many others are either under-filing or evading taxes altogether. If taxed accurately, the potential revenue from these individuals could reach Rs1.7 trillion.

He stated that to stabilise the economy, Pakistan's tax-to-GDP ratio must be increased to 14%. He further mentioned that the FBR has introduced a Transformation Plan aimed at enhancing efficiency. "With the government support, the FBR is undergoing reforms and restructuring, and soon it will emerge as a significantly improved institution," he added.

Langrial also shed light on the positive developments, such as an increase in formal imports in November and the reorganisation of the Customs Enforcement Wing. He said that in the past, around Rs35 billion in tax refunds were issued annually for fast-track cases but in the current month alone, refunds worth Rs70 billion have been disbursed.

Speaking at the occasion, LCCI President said that the business community is willing to pay taxes but overly complex tax system is a major obstacle to expanding the tax net. He expressed concerns over issues like frequent audits, the FBR's access to bank accounts and surcharges, which discourage businesses from formalising their operations.

Shad presented the data highlighting the FBR's collection in the fiscal year 2023-24, which stood at Rs9,311 billion. He said that direct taxes were Rs4,530 billion, customs duty Rs1,104 billion, sales tax Rs3,098 billion and federal excise duty Rs577 billion.

He said that despite the business community's significant contribution to tax revenue, the targets for the current fiscal year—set at Rs12,970 billion—appear unrealistic. The breakdown of these targets includes Rs5,512 billion in direct taxes, Rs1,591 billion in customs duty, Rs4,919 billion in sales tax and Rs948 billion in FED. Shad further highlighted that the FBR is already facing a shortfall of Rs344 billion.

The LCCI president suggested simplifying the tax regime and promoting awareness about the benefits of entering the tax net. He also urged the government to ensure policy consistency to foster confidence among businesses and improve economic conditions.