Pakistan’s Tax-to-GDP ratio has shown a significant improvement, rising to a double-digit level of 10.3% in the fiscal year (FY) 2024-25, up from the previous five-year average of 8.7%.
Key Drivers of Improvement
The improvement is primarily attributed to an exceptional increase in direct taxes. According to the FBR report, the key components of the improved ratio are:
- Direct Taxes: Now constitute 5.1% of the total GDP (previously 3.7%).
- Sales Tax: Represents 3.4% of the GDP (a slight decrease from the previous 5.8% for indirect taxes).
Over the last decade, the tax system has seen a positive shift, with the share of indirect taxes in the FBR’s Tax-to-GDP ratio decreasing from 5.8% to 5.2%, while the share of direct taxes increased from 3.7% to 5.1%.
Enforcement and Revenue Collection Highlights
The report highlighted the success of various enforcement measures and structural reforms:
- Enforcement Collections: Collections through enforcement actions surged to PKR 874 billion during FY 2024-25, which is an eightfold increase compared to PKR 105 billion in the preceding fiscal year.
- Real-Time Monitoring: The Real-Time Production Monitoring System yielded additional revenue:
- Sugar Sector: PKR 25 billion collected from July to December 2024-25.
- Cement Sector: PKR 12.8 billion collected from July to June 2024-25.
- Retail Sector Enforcement: Enforcement in the retail sector strengthened, with POS (Point-of-Sale) installations exceeding 40,000, extending the system’s reach to 38% of Tier-1 retailers.
- Dispute Resolution: Accelerated resolution of disputes contributed significantly, resulting in PKR 255 billion recovered through legal settlements.
- Targeted Notices: Targeted notices sent to taxpayers led to an increase in acceptable tax liabilities from PKR 160 billion in FY 2023-24 to PKR 218 billion in FY 2024-25.
Customs and Governance Reforms
- Faceless Assessment: The introduction of Faceless Assessment in Customs increased transparency and significantly improved the average value of duty and taxes per Goods Declaration (GD). For instance, at Dry Port Lahore (East), this average rose from PKR 25 million (Apr-Jun 2023-24) to PKR 35 million in the same period of 2024-25, representing a 40% year-on-year increase.
- Performance Review: The FBR introduced a peer-rated performance appraisal system that rewards officers demonstrating excellent performance and high integrity.
These combined efforts have led to increased documentation, reduced leakages and discretionary powers, and an improvement in the voluntary tax compliance trend. Overall FBR revenue recorded a 26.3% increase in FY 2024-25, pushing the Tax-to-GDP ratio from 8.8% to 10.3%. The continuous rise in tax collections suggests this ratio is likely to improve further in the coming years.
