Over Rs. 4 Trillion of Pakistan’s Tax Revenue is Stuck in Litigations

Over Rs. 4 Trillion of Pakistan’s Tax Revenue is Stuck in Litigations

The number of litigation has increased due to the liberal tax structure and independent judiciary, and as a result, more than Rs. 4 trillion in tax income is stalled in litigation at various appellate fora, according to the Finance Division.

The Division noted in its “Medium-Term Budget Strategy Paper 2022-23 – 2024-25” that in order to handle this issue, the government is thinking about hiring panels of competent attorneys and “special prosecutors” in some circumstances in order to resolve outstanding concerns while preserving revenue.

Businesses across the nation are paying a high price as a result of the country’s current lack of sales tax harmonization, which is brought on by the federal government’s collection of sales taxes on commodities and the province governments’ collection of sales taxes on services. Therefore, the government intends to collaborate with the provincial governments in order to harmonies scope, rate, etc., and provide a system where firms could file a single sales tax return.

Facilitating the design of medium-term policies based on accurate revenue and expenditure estimates is one of the Medium-Term Fiscal Framework’s main goals. In light of historical trends, new policies, particular requirements, and the government’s medium-term strategic aims, it reflects a variety of revenue sources and expenditure headings. The framework also emphasizes the federal and provincial governments’ primary and budgetary balances. Estimated amounts of provincial surpluses have also been calculated in order to project the overall fiscal balance.

The gross federal revenues of Pakistan are predicted to account for 11% of GDP in FY22 and stable at 12% of GDP over the medium term. The same trends projected in the gross federal revenues are anticipated to apply to transfers to provinces.

To regain fiscal sustainability in the medium to long term, the government’s goal is centered on reducing deficits. In Pakistan, the macroeconomic instability is mostly caused by the fiscal imbalance. The fiscal deficit over the past three years has averaged Rs. 4,000 billion annually.

The fiscal deficit was only Rs. 1,671 billion annually from FY 2014 to FY 2018. The increased budget deficit strains the current account balance in addition to raising debt levels. The country’s declining tax-to-GDP ratio has been the main cause of the significant budget deficit over the past four years.

In FY 2017–18, the FBR tax–to–GDP ratio was 11.7 percent; by FY 2020–21, it had dropped to barely 8.5 percent. On the other side, there were expenditure slippages that made the nation’s fiscal deficit situation worse.

In light of the aforementioned, lowering the fiscal deficit is the budget’s main goal for FY 2022–2023 This will be accomplished through raising the revenue share of the GDP and reducing wasteful spending. The government would work to streamline untargeted subsidies, lower the losses of public sector businesses through enhanced supervision, and reduce showy expenditure through an austerity push.

Budget 2022–2023 aims to reduce untargeted subsidies to free up funds to protect the underprivileged from inflation. Inflation measured by the CPI during July through March of FY2022 was 10.8% compared to 8.3% during the same period in 2017. The administration will make every effort to reduce the present inflationary increase.

Nevertheless, given the current global climate, reducing current inflation down will take some time and shouldn’t result in a recession. In order to safeguard the poor, the government intends to redirect funds from untargeted handouts. These subsidies will be specifically designed to help the underprivileged during this tough period. Through increased funds for BISP, the government will keep up its social protection program.

Maximal revenue mobilization, a wider tax base, fewer exemptions, and effective revenue management. The government’s top strategic aims are to maximize revenue collection, grow the tax base and tax net, decrease tax expenditures, improve revenue administration efficiency, raise the proportion of direct taxes, and simplify taxpayer facilitation processes. Due to this, difficult revenue predictions have been developed for the medium term.

In order to gain a better return on its investment, the government will continue the PFM reform program. The Public Finance Management Act of 2019 will continue to be implemented by the government. A new set of rules and regulations are being created in this regard.

To increase responsibility for public spending, the Treasury Single Account will continue to be expanded outside Divisions and Attached Departments, and result-based budget management will be made more effective.

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