Pakistan to impose new surcharges on fossil fuels to increase tax-to-GDP ratio

The Pakistani government will impose new surcharges on fossil fuels and widen the provincial tax base along with taking enforcement measures to achieve a tax-to-GDP ratio of 13.7% by fiscal year 2028-29.

These measures are aimed at fulfilling the country's commitment to the International Monetary Fund IMF) under a $7 billion Extended Fund Facility.

According to an annual report by the Federal Board of Revenue (FBR) — Pakistan's tax collection authority — 11.1% of the tax-to-GDP ratio is expected to come from these policy and enforcement measures, while 2.6% will come from the new surcharges and increased non-tax revenue receipts.

In fiscal year 2023-24, FBR tax revenues saw a notable 30% increase, improving the tax-to-GDP ratio from 8.54% to 8.77%.

Over the past few years, various policy and enforcement measures implemented by the FBR, along with the dedicated efforts of its top management, have led to significant growth in tax revenues.

The continued growth in tax revenues is expected to further improve the tax-to-GDP ratio in the coming years. Over the past four years, the proportion of direct taxes to GDP has increased from 3.10% in FY21 to 4.27% in FY24.

This shift towards more direct taxes and fewer indirect taxes is a positive development for Pakistan's tax structure.

The tax-to-GDP ratio is a key metric for assessing a country's tax revenue in relation to its GDP size. It provides insight into tax policy and allows for global comparisons.

Higher tax revenues enable countries to invest more in essential areas like infrastructure, healthcare, and education. According to the World Bank, tax revenues exceeding 15% of a country's GDP are crucial for economic growth and poverty reduction.

With these measures, Pakistan aims to create a more robust and effective tax system to support the country's economic development.