FBR Chairman emphasizes need to improve Tax-to-GDP ratio

LAHORE: Chairman of the Federal Board of Revenue (FBR), Rashid Mahmood Langrial, has stressed the importance of improving Pakistan’s tax-to-GDP ratio.

During his visit to the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday, he concurred with LCCI President Mian Abuzar Shad that Pakistan’s sales tax, corporate tax, and income tax rates should be lowered. However, he emphasized that such reductions could only be implemented if the tax system effectively captures revenue from all sectors of the economy.FBR’s Tax Strategy Sparks Outrage Among Salaried Class

LCCI President Mian Abuzar Shad, Senior Vice President Engineer Khalid Usman, Vice President Shahid Nazir Chaudhry, and former LCCI leaders, including Mian Anjum Nisar, Muhammad Ali Mian, Ali Hussam Asghar, Tahir Manzoor Chaudhry, and Haris Atiq, also addressed the gathering.

Rashid Mahmood Langrial highlighted that Pakistan’s current tax-to-GDP ratio is 10.3 percent, significantly below the desired level. He noted that the sales tax-to-GDP ratio is merely 3 percent, whereas it should ideally be at least 5 percent.

He stated that Pakistan has approximately 67 million individuals who are employed or seeking employment. Among them, the top 1 percent of earners—around 670,000 individuals—should contribute substantially to income tax. However, only 200,000 individuals are paying their due share, while many underreport or evade taxes. If taxed accurately, these individuals could generate revenue of up to Rs 1.7 trillion.

To stabilize the economy, Langrial said the tax-to-GDP ratio needs to increase to 14 percent. He explained that the FBR has launched a Transformation Plan aimed at improving efficiency. “With government support, the FBR is undergoing significant reforms and restructuring, and it will soon emerge as a more effective institution,” he remarked.

He also mentioned positive developments, such as a rise in formal imports in November and the reorganization of the Customs Enforcement Wing. He added that while Rs 35 billion in tax refunds were typically issued annually for fast-track cases, Rs 70 billion in refunds have been processed this month alone.

LCCI President Mian Abuzar Shad expressed the business community’s willingness to pay taxes but criticized the overly complicated tax system, which he said hinders the expansion of the tax net. He raised concerns about frequent audits, FBR’s access to bank accounts, and surcharges, which discourage businesses from formalizing their operations.

He shared data showing that FBR’s tax collection for the fiscal year 2023-24 was Rs 9,311 billion, with Rs 4,530 billion in direct taxes, Rs 1,104 billion in customs duty, Rs 3,098 billion in sales tax, and Rs 577 billion in federal excise duty (FED).

Despite the business community’s significant tax contributions, Shad argued that the current fiscal year’s target of Rs 12,970 billion is unrealistic. The targets include Rs 5,512 billion in direct taxes, Rs 1,591 billion in customs duty, Rs 4,919 billion in sales tax, and Rs 948 billion in FED.