ISLAMABAD: The Tax-to-Gross Domestic Product (GDP) ratio drastically decreased from 9.22 percent in 2021-22 to 8.77 percent during 2023-24.

The Federal Board of Revenue (FBR) report revealed that the tax-to-GDP ratio is a key metric for assessing a country’s tax revenue in relation to its GDP size.

It offers insight into the general trajectory of tax policy and allows for global comparisons of tax revenues relative to economic scales. This ratio also reflects how effectively a nation’s government allocates its economic resources through taxation.

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Typically, developed nations exhibit higher tax-to-GDP ratios compared to developing countries. Higher tax revenues enable a country to invest more in essential areas such as infrastructure, healthcare, and education.

According to the World Bank, tax revenues that exceed 15 percent of a country’s GDP are crucial for fostering economic growth and reducing poverty.

Over the past few years, the FBR has implemented various policy and enforcement measures. These initiatives, coupled with the dedicated efforts of FBR’s top management, have begun to yield significant results, manifesting as robust growth in tax revenues. There was a notable 30 percent increase in FBR tax revenues during 2023-24, which improved the Tax-to-GDP Ratio from 8.54 percent to 8.77 percent.

With the continued growth in tax revenues, it is anticipated that the Tax-to-GDP ratio will further improve in the coming years.

Over the past four years, the proportion of direct taxes to GDP has seen a positive trend, increasing from 3.10 percent in 2020-21 to 4.27 percent in 2023-24. This shift towards a greater reliance on direct taxes, coupled with a decreasing share of indirect taxes, is a promising development for Pakistan’s tax structure, FBR report added.

Copyright Business Recorder, 2024