FBR Chief Highlights Need for Enhanced Tax-to-GDP Ratio

Aftab Alam, the chief commissioner of the Federal Board of Revenue (FBR), emphasized on Tuesday that an improved tax-to-GDP ratio is essential for alleviating the government’s debt burden and bolstering the national economy. He made these comments at an event hosted at the Association of Builders and Developers of Pakistan (ABAD) House in Karachi.

“India’s tax-to-GDP ratio stands at 17%, whereas Pakistan’s is only 9%,” Alam noted, underscoring the disparity.

Earlier in the month, Finance Minister Muhammad Aurangzeb projected that Pakistan’s tax-to-GDP ratio would likely reach 10.6% by the close of the current fiscal year.

“This progress will move us closer to the government’s objective of elevating it to 13% by the end of the 37-month Extended Fund Facility (EFF) agreement with the International Monetary Fund (IMF),” Aurangzeb stated during a virtual meeting with representatives from S&P Global Ratings as part of the ongoing Pakistan Sovereign Ratings Review.

The IMF anticipates Pakistan’s total tax revenue to be 12.6% of the gross domestic product (GDP) for FY2024-25. The lender’s report, titled ‘First review under the Extended Fund Facility arrangement’, estimated FBR collections at 10.7% of GDP for the current fiscal year (2024-25), surpassing the initial target of 10.6%.

Alam acknowledged the disproportionate burden on existing taxpayers due to the limited number of contributors within the tax system.

He underscored the importance of broadening the tax base.

Alam said, “Now it’s our turn to do our part by paying taxes”.

ABAD Chairman Advocates for Long-Term Tax Policies

Also at the event, ABAD Chairman Muhammad Hassan Bakshi stated that Pakistan is currently engaged in an economic struggle, highlighting the critical need for investment during such times.

He pointed out the construction sector’s potential to play a vital role in this context.

He urged the FBR and the government to develop a stable, long-term tax framework to stimulate investment within the nation.

“The construction sector is instrumental in attracting investment. Approximately 50% of the $34 billion remitted by overseas Pakistanis is invested in this sector.”

The ABAD chairman highlighted that frequent revisions to tax regulations generate uncertainty among investors.

“Investment is not feasible without consistency and transparency in the tax regime,” he asserted.

Bakshi emphasized the construction industry’s significance as the largest source of employment in the country, with connections to 72 related industries.

“This sector is entirely domestic, involving only Pakistani buyers and sellers.

“Promoting the construction industry is essential for increasing employment. Tax collection will only improve when business activity increases.”

He also voiced concerns regarding the issuance of tax notices to builders and developers, suggesting that copies of notices to ABAD members should be shared with ABAD House to enable the provision of legal support.

Bakshi further advocated for improvements to the valuation system and requested that the FBR assign a dedicated liaison at ABAD House to ensure enhanced coordination.

The ABAD chairman revealed that in Karachi’s South District alone, 50 investment-ready projects, valued at $5 billion, are prepared for development.

“This is our country, and we must take the initiative to improve it,” he affirmed.

Bakshi mentioned the upcoming launch of a subsidized housing finance program by the government, which will enable buyers to make a 20% down payment, with the remaining 80% payable in installments.

He noted that this initiative has the potential to generate trillions of rupees in tax revenue for the FBR.