47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Pakistan Economic Survey 2011-12Table 4.2: Structure of Federal Tax Revenue (Rs. Billion)YearTax Rev as % DirectIndirect TaxesTotal (FBR)of GDP Taxes Customs Sales Excise Total[39.4] {25.8} {60.3} {14.0} [60.6]2007-08 1,008.1 9.8387.9 150.7 377.4 92.1 620.2[38.5] {24.3} {60.9} {14.9} [61.5]2008-09 1,161.1 9.1443.5 148.4 451.7 117.5 717.6[38.2] {20.7} {62.9} {16.4} [61.8]2009-10 1,327.4 9.0526.0 160.3 516.3 124.8 801.4[39.6] {20.0} {64.4} {15.6} [60.4]2010-11 1,558.2 8.6602.5 184.9 633.4 137.4 955.7[38.7] {19.3} {66.3} {14.4} [61.3]2011-12B 1,952.0 9.5745.0 215.0 852.0 140.0 1207.0[38.2] {17.8} {70.6} {11.6} [61.8]Source: Federal Board of Revenue[ ]as % of total taxes{ } as % of indirect taxesUnder the present tax system, some sectors areunder-taxed and others are not taxed at all. Thisdistortion is being addressed. Moreover, theinternal tax system has undergone substantialchanges as the share of income tax has risensignificantly from around 32 percent in 2000-01 to38.2 percent in 2011-12. On the other hand thecomposition of taxes has been rationalized with agradual decrease in the dependence on foreigntrade taxes and a simultaneous increase in GST.Customs and excise duties have registered agradual decline on account of the tax and tariffreforms with excise and custom comprising only8.5 percent and 10.6 percent respectively in 2011-12. Pakistan’s tax to GDP ratio stood at around 8.6percent in 2010-11 and expected to be about 9.5percent of GDP in 2011-12. The indirect tax toGDP ratio stood at around 5.3percent and directtax to GDP ratio at around 3.3 percent in 2010-11.During July-April, 2011-12 indirect tax to GDPratio stood at 4.3 percent and direct tax to GDPratio recorded at 2.6 percent. The ratio can only beincreased substantially if the major contributors toGDP growth not included in the tax net can bebrought into the tax system.Tax ReformsThe low tax-to-GDP ratio restricts the country’sability to counter inflation, deliver quality publicservices or improve human resources to reach atake-off stage for economic development. Toaddress this issue and others including debtservicing and defense needs, the government hasplaced Tax Administration high on its reformagenda.Reform StrategyThe reform strategy had three main planks (a)policy reforms, (b) administrative reforms and (c)organizational reforms. The policy reforms includesimpler laws, universal self-assessment,elimination of exemptions, less dependence onwithholding taxes and effective dispute resolutionmechanism. The administrative reforms aim (i) totransform income tax organization on functionallines; (ii) re-engineer manual processes of all taxeswith the aim to reduce face to face contact betweentaxpayers and tax collectors, increase effectivenessof FBR, and improve skills and integrity of theworkforce and facilitation of taxpayers. Theorganizational reforms also included reorganizationof the FBR on functional lines,reduction in number of tiers and reduction in theworkforce.In pursuance of tax reforms FBR has been restructuredon functional lines. With a view tosupplement the level of skills in the FBR, thegovernment in March-April, 2001 appointedprofessional members from private sector for (i)Human Resource Management (HRM), (ii)Information Management System (IMS), (iii)Audit, (iv) Facilitation and Taxpayers Education(FATE) and (v) Fiscal Research and Statistics(FR&S). The FBR has prepared a new recruitmentpolicy (with greater emphasis on skills that match56