The pace of growth in revenue remained slow during 2017-18 as compared to 2016-17, primarily due to low Federal Board of Revenue (FBR) tax revenues and provincial taxes, according to Economic Survey (2017-18) issued here on Thursday. According to the Economic Survey (2017-18), during 2017-18 overall tax revenues posted a growth of 8.4 percent against an impressive growth of 21.3 percent recorded in 2016-17.
In terms of GDP, tax revenues reduced to 12.4 percent in fiscal year 2017 from 12.6 percent recorded in 2016-17. The FBR tax collection grew by 8.2 percent in 2017-18 as compared to remarkable growth of 20.2 percent witnessed in 2016-17. In fact, various tax incentives and relief measures to encourage investment, exports and domestic production added to the slower growth in tax revenues during 2017-18.
Similarly, the taxes collected by the provincial governments grew by 13.6 percent during 2017-18 against an impressive growth of 37.6 percent recorded in 2016-17.
About non-tax revenues, the survey said that a strong reversal in growth of non-tax revenues has been witnessed during 2017-18 after a sharp decline in 2016-17. Contrary to tax revenues, non-tax revenues posted a significant growth of 23 percent during 2017-18 over preceding year which is largely attributed to one-off receipt from disinvestment of government stakes in the Pakistan Security Printing Corporation and sale of two LNG power plants under the Pakistan Development Fund. Viewed from GDP perspective, non-tax revenues increased to 3.0 percent during 2017-18 from 2.7 percent in 2016-17.
For FY 2018, total revenues are expected to reach 17.2 percent of GDP on account of 13.7 percent and 3.5 percent target of tax and non-tax revenues respectively.
Overall tax-GDP ratio has increased from 9.8 percent during FY 2013 to FY 2016, however, it fell to 12.4 percent introduced through the Federal Budget for FY 2017.
Within Indirect tax, the proportion of sales tax increased from 60.3 percent in FY 2006 percent during FY 2012. However, the share has witnessed a gradual decline since FY2013 and reduced to 65.7 percent in FY 2017. During FY 2018, the share of sales tax is budgeted at 66.4 percent of indirect tax hand, in total FBR tax collection, the share of sales tax reduced from 41.3 percent in FY2006 to 39.5 percent during FY2017.
Within Indirect tax, the proportion of sales tax increased from 60.3 percent in FY 2006 to 70.3 percent during FY 2012. However, the share has witnessed a gradual decline since FY2013 and reduced to 65.7 percent in FY 2017. During FY 2018, the share of sales tax is budgeted at 66.4 percent of indirect taxes. On the other collection, the share of sales tax reduced from 41.3 percent in FY 2006 to 39.5 percent during FY 2017.
The base of indirect taxes, particularly of sales tax, has further contracted due to shifting of services to the provincial governments like telecommunication, banking and insurance services which were the major source of revenue of sales tax. Moreover, over a period of time the sales tax has been restructured as a tax on consumption, which is in line with the principle of equity and progressivity.
The base of indirect taxes, particularly of sales tax, has further contracted due to shifting of services to the provincial governments like banking and insurance services, which were the major source of revenue of sales tax. Moreover, over a period of time the sales tax has been restructured as a tax on consumption, which is in line with the principle of equity and progressivity.
Likewise, customs duty constituted 24.5 percent of indirect taxes during FY 2017 against 28.3 percent recorded in FY 2006. The share is likely to be 24.0 percent during current fiscal year. It is worth mentioning that the maximum statutory rates of customs duty have been gradually reduced from 125 percent in FY1988 to 20 percent in FY2016. Resultantly, the contribution of customs duty in total FBR collection has come down from 45.7 percent in FY1991 to 15 percent in FY2017. During the FY 2018, its share is expected to reduce further to 9.6 percent. The tax base of FED contracted over the years and now is restricted to only few commodities like cigarettes, cement, beverages, international travel etc.
On the other hand, the share of direct taxes in total taxes has increased over the years. It has further jumped to 38.2 percent in FY2013 and now it is 40 percent in FY2017.
The improved performance of direct taxes is mainly due to a number of reform initiatives undertaken in the past like introduction of Universal Self-Assessment Scheme (USAS), promulgation of Income Tax Ordinance, 2001 where emphasis was shifted to voluntary compliance, automation of entire business processes and reduction of corporate tax rates from peak of 49 percent to 31 percent in tax year 2017 and 30 percent onwards by providing level playing field to the taxpayers. With the help of all these initiatives, tax revenue collection from direct taxes has increased substantially and will increase in future. A comparison of direct and indirect taxes in terms of contribution in overall federal taxes collected by FBR indicates that the reliance on indirect taxes has reduced to a great extent, it added.
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