The federal government has set a revenue target of Rs9200 billion for the Fiscal Year 2023-24, registering a growth rate of 27.8%. However, achieving this target requires improvements in tax compliance, said Hafeez Pasha, former federal minister for finance, while talking to WealthPK. The FBR's revenue target growth rate of nearly 28% in 2023-24 is accompanied by significant risk factors, which, in his opinion, include the following: First, given the low foreign exchange reserves at the beginning of the year and conclusion of the IMF program, it is probable that the strategy of significantly restricting imports will persist. Achieving a growth rate of 9% in customs duties and 26% in sales tax will pose a challenge to meet the revenue targets. In addition, he underscored that the manufacturing sector plays a pivotal role in generating revenues.

Unfortunately, this sector is currently experiencing a profound recession. In April 2023 alone, the sector's real value added witnessed a staggering decline of 21%, and over the ten-month period from July to April, the contraction reached over 9%. The former federal minister said apart from the abovementioned obstacles, the taxation system had some prominent structural issues that will restrain the government’s ability to meet the revenue target. “Pakistan's diminishing tax revenue and prevalent tax avoidance stem from its constrained tax base. The government's overreliance on the salaried class and corporate entities to shoulder excessive tax burdens perpetuates a non-competitive market environment”. Tax avoidance and evasion are widespread phenomena in various parts of the world, he said. However, an effective tax administration can consistently compel individuals to adhere to tax laws and fulfill their financial obligations to the state.

In order to improve tax compliance, he suggested the government adopt risk-based auditing, a common practice in most of the developed world. “The approach of implementing risk-based auditing techniques to target high-risk areas and taxpayers will allow the FBR to focus its resources on cases with a higher likelihood of non-compliance”. Streamlining and simplifying tax laws to make them more transparent and understandable for taxpayers is also important to improving tax compliance. Clear and straightforward regulations can reduce confusion and encourage compliance, he mentioned. Hafeez Pasha recommended the establishment of an efficient and fair alternative dispute resolution (ADR) mechanism to resolve tax disputes promptly in order to reduce the burden on the FBR’s system and to provide a quicker resolution for taxpayers.

Credit: Independent News Pakistan (INP)