Pakistan’s Tax-to-GDP Ratio Raises Alarms Among Tax Experts

World Bank’s Senior Tax Specialist, Sebastian James, has pointed out that Pakistan’s tax-to-GDP ratio dropped below average during the last two fiscal years.

He also pointed out that overdependence on withholding taxes was adding to the economic troubles of the country.

He said that withholding taxes create distortions, as they created cash flow problems for the formal sector because the refunds were not being paid on time in Pakistan.

James made these remarks during a webinar organized by Pakistan Development Policy Series 2021 in collaboration with the World Bank.

Special Assistant to the Prime Minister on Revenues, Dr. Waqar Masood, during the webinar, said that the government was reforming the withholding tax regime.


FBR Reduces WHT on Commercial Import of Sugar

So far, there are 65 types of withholding taxes in Pakistan, out of which the government is planning to abolish 40 within the next two fiscal years, starting with the upcoming budget for the fiscal year 2021-2022.

The WB’s Country Director in Pakistan, Najy Benhassine, at the occasion, said that the tax base was narrow in Pakistan, and higher tax expenditures and tax concessions created distortions.

James said, “There is a need to broaden the narrow tax base instead of burdening the existing taxpayers. It’s our serious concern that the average tax collection dropped in Pakistan in the last fiscal years as compared to the similar economies.” He said that there was a higher taxation rate on the formal economy, and under taxation for the informal economy.

He suggested that the transition for moving away from withholding taxes should be done carefully, as it should be done away with the placement of an improved information management system.

Some withholding taxes are not meant for the collection of money, but they provided information, so transition became tough, and it should be done carefully.

  • Citizens of Pakistan pay the most indirect taxes in the world, and this is the reason why the country is still running despite such a low tax to GDP ratio. This ratio does not indicate the actual situation in Pakistan and is a misleading figure.
    An average citizen spends up to 60% of their income on basic facilities, because the govt. has failed to provide them these (like education, health, transport, utilities, safety/security etc.). If govt. were to do its job in all departments, people would not have to spend money on these necessities and would happily pay taxes. Now, they don’t feel obliged. In developed countries, citizens don’t spend on these things and are happy to pay high taxes (which is still half of what Pakistanis spend to get similar facilities).

  • close