The news: The federal government of Pakistan has made a decision to remedy the low tax-to-GDP ratio, which has been 11% for the past two decades. In order to rectify the long-standing lack of governance, the government plans to speed up the implementation of technology at retail outlets.
Point of sales: In the next six months, technological systems like the point of sales (POS) will be deployed in various markets. A decision to implement 8,500 electronic devices like the POS by December 2020 has been made. This will assist the authorities in bringing financial payments into the documentation of the formal economy and vendors into taxpayers’ net. The Federal Minister for Industries and Production Hammad Azhar presented the budget for the fiscal year 2021 (FY21) to the national assembly. He said that the successful installation of point of sales system at 6,616 retail outlets and bringing retailers into the tax net had assisted the government to expand the narrow tax base. The goal is to increase the number of these systems to 15,000 by the end of this year. He also said that the efforts to boost the tax-to-GDP ratio, including policy reforms, have been fruitful so far.
Fiscal budget: To reach their objective by the end of the year, the government has presented the proposal to reduce the rate of sales tax from 14% to 12% for the retailers who register with POS. This reduction will not only help document the economy but also give an incentive to retailers and relief from the economic downturn caused by the covid-19 pandemic. The tax-to-GDP ratio of Pakistan is the lowest among emerging economies and has remained 11% for the past twenty years. Expecting this measure to be successful, the government aims to collect Rs4.9 trillion in taxes during the 2021 fiscal year. This is around 26% higher than the estimated collection of the fiscal year 2020, evaluated to be Rs3.9 trillion.
Additional measures: A system that allows citizens to pay tax online and a tax return mobile application has been launched in order to facilitate individuals and salaried persons. According to estimates, the application has helped to increase the number of citizens who file the income tax return by 37%. Anti-smuggling and law enforcement drives have also been successful in increasing the number of seizures from Rs19 billion to 30 billion. The government expects that the collection of revenue and the number of taxpayers will also increase due to these measures. The federal minister also praised the efforts to collect the revenue during the pre-covid period. Domestic taxes grew by 27% and the tax collection from import increased by 7%, even though the expected growth had been diminished by structural adjustments and economic effects of the pandemic.