“FBR’s Tax Revenue can increase up to Rs. 12,788 billion in the next nine years”, World Bank

WB discovered that the tax revenue of Pakistan would reach 26% of GDP if tax compliance were increased to 75%.

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Despite facing resistance from employees to establish the PRA (Pakistan Revenue Authority), the World Bank (WB) has estimated that in the next nine years, tax revenues of FBR could go up to $82.4 billion (Rs.12,788 billion).

With the introduction of taxation measures, this number can go up to $96.6 billion (Rs.14,993 billion). On the tax gap analysis’ issue, WB discovered that the tax revenue of Pakistan would reach 26% of GDP if tax compliance was increased to 75%, which is more of a realistic level for MICs (Middle-Income Countries).

However, FBR has stopped the process of converting FBR into PRA for the ongoing time since officials of the tax machinery gave tough resistance, stating that they weren’t taken in confidence during the restructuring plan.

The baseline scenario:

The WB has devised different scenarios and circumstances, under which the project’s benefit-cost ratio could range from 42% to 70%, and the internal rate of return (IRR) could lie in between 130% to 195 %. In the baseline scenario (without the intervention of the project), the tax revenue could reach $1.5 billion in FY 23/24 and $82 billion in FY 28/29.

In its report, WB said that Pakistan has the potential to increase tax receipts, without imposing new taxes or raising tax rates. I can be done by using a broad-based low-rate approach.

A tax gap analysis, which was completed just recently by World Bank, shows that the tax revenue of the country will reach 26% of GDP if tax compliance was raised up to 75%, which is accurate for MICs.

This only meant that the tax authorities are collecting half of the country’s revenue potential, so the gap between actual and potential revenues is 50%.

The size of this gap can be changed by tax instrument and sector. It is larger in the services sector than in manufacturing (67% vs. 46%) and is greater for General Sales Tax (GST) on goods and GSTS (General Sales Tax on Services) than for income tax.

This gap is even bigger for taxes assigned to provinces, specifically GSTS. So, the provinces have a greater chance to increase their contribution to the country’s total tax take.

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