UNESCAP report projects widening tax gap in Pakistan

A top UN agency report has assessed that Pakistan’s tax gap stands at around 3 per cent of GDP and could go to over 12 per cent against the existing level of 9 per cent of GDP, a local media report said on Saturday.

On the macroeconomic front, the United Nations Economic and Social Survey of Asia and Pacific (UNESCAP) 2024 projected the Gross Domestic Product (GDP) growth of 2 per cent and inflation at 26 per cent for the ongoing fiscal year.

“The GDP growth rate is projected to go up to 2.3 per cent in FY25 while inflation would fall to 12.2 per cent,” reported The News International.

On tax gap, the UNESCAP states that despite their low tax levels, tax gaps in Bangladesh, Pakistan and Sri Lanka are moderate, although such gaps are not necessarily small if measured as a share of current tax revenues rather than as a share of GDP.

This suggests that better tax policies and administration alone may not help bridge the vast development financing gaps in low tax countries. Overall improvements in socioeconomic development and public governance would be needed as well as tax revenue enhancement on a larger scale.

The Federal Board of Revenue’s (FBR) tax to GDP ratio hovers around 9 per cent of GDP keeping in view the projected annual tax collection target of Rs 9,415 billion for the current fiscal year. The UNESCAP has estimated that the tax to GDP ratio could go up to 12 per cent of GDP.

It further states that Pakistan’s economy faced political unrest that had adverse impacts on business and consumer sentiment, while a massive flood disrupted agricultural production.

Pakistan secured an IMF agreement in mid-2023 which would help with further assistance from such bilateral partners as China, Saudi Arabia and the United Arab Emirates.

Essentially, the economy is undergoing fiscal adjustments to restore fiscal sustainability through the use of various measures, such as removing subsidies for the power sector in Pakistan.

Despite their low tax levels, tax gaps in Bangladesh, Pakistan and Sri Lanka are moderate, although such gaps are not necessarily small if measured as a share of current tax revenues rather than as a share of GDP, the report said.

This suggests that better tax policies and administration alone may not help bridge the vast development financing gaps in low tax countries. Overall improvements in socioeconomic development and public governance would be needed as well as tax revenue enhancement on a larger scale, according to the paper.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)