Pakistan’s economy faces a concerning challenge as its tax-to-GDP ratio stands at a mere 10.4%, according to a report released by the World Bank. The report, titled “Strengthening Government Revenues,” highlights the significant gap between the country’s tax collections and its tax capacity, which is estimated at over 22% of GDP.
This decline in the tax-to-GDP ratio is attributed to rising tax expenditures, particularly at the federal level. In the fiscal year 2022, Pakistan’s tax collections reached only 10.4% of GDP, a trend that has been steadily declining. The federal government’s tax expenditures increased from 1.3% of GDP in FY16 to 2.7% of GDP in FY22, putting further strain on revenue generation efforts. The report also highlights that the majority of revenues in Pakistan are collected at the federal level, primarily through indirect taxes on consumption.
