India and Pakistan: Tax Incentive Packages Comparison

Method

This study is descriptive, qualitative and analytical in essence. The research includes study of various research journals, research reports, and papers, reports of the FBR, IMF, WB, SBP and OECD and newspaper articles. The study relies upon the data of the WB for ratios of different economic indicators of India and data of FBR and Ministry of Finance on figures of tax collected and various GDP percentages.

Organization of Paper

Introduction to this study emphasizes role of taxes in fiscal policy and tax amnesty as quick source of tax revenue.  It also highlights various aspects related to tax amnesty schemes.

This paper has three Sections.  The first Section depicts situation analysis of overall tax base of Pakistan and an overview of tax culture, impact of cultural variations in tax compliance and formulation of tax compliance strategies

Section II explains salient features of major tax amnesty schemes introduced in the last decade in India and Pakistan.

Section III makes a comparison and analysis of amnesty schemes discussed in Section-II in terms of its effectiveness.

The paper then concludes the discussion followed by policy recommendations.

GDP of Pakistan and Tax Culture

1.1             GDP of Pakistan and Tax- GDP Ratio

Gross Domestic Product of Pakistan has increased by 200% over the last decade from 12 Rs. trillion in 2008-09 to Rs. 36 trillion in 2018-19. The table below depicts GDP growth rate over the period of ten years:

Table 1: Pakistan’s GDP & Growth Rate

Year GDP Growth Rate
2008-2009 0.4%
2009-2010 2.6%
2010-2011 3.6%
2011-2012 3.8%
2012-2013 3.7%
2013-2014 4.1%
2014-2015 4.1%
2015-2016 4.6%
2016-2017 5.4%
2017-2018 5.79%
2018-2019 3.29%
Source: Economic Survey of Pakistan 2008-2009 to 2018-2019

The above-tabulated position indicates that GDP had experienced a sharp decline in FY 2008-2009. It then grew gradually to 5.79% in FY 2017-2018 and again fell to 3.29% in 2018-19. The sectoral share in GDP of Pakistan over the last decade is as under:

Table 2: Sector wise Share in GDP (at constant basic prices) %age

Year Agriculture Manufacturing Services
2008-2009 22.55 20.87 56.59
2009-2010 22.03 21.04 56.93
2010-2011 21.68 21.22 57.10
2011-2012 21.63 20.95 57.41
2012-2013 21.42 20.36 58.22
2013-2014 21.10 20.45 58.44
2014-2015 2017 20.67 58.61
2015-2016 19.84 20.90 59.26
2016-2017 19.22 20.91 59.87
2017-2018 18.86 20.91 60.23
2018-2019 18.50 20.30 61.20
Source: Economic Survey of Pakistan 2018-2019

The tax- GDP ratio measures revenues in comparison to GDP. More the ratio, more the fiscal space for growth, and lesser the fiscal deficit and vice versa. A picture of Pakistan’s tax & GDP is given in the table below:

Table 3: Tax-GDP Ratio (As % of GDP)

Year Revenue Tax revenue Non-tax revenue
2008-2009 14.0% 9.1% 4.9%
2009-2010 14.0% 9.9% 4.1%
2010-2011 12.3% 9.3% 3.0%
2011-2012 12.8% 10.2% 2.6%
2012-2013 13.3% 9.8% 3.5%
2013-2014 14.5% 10.2% 4.3%
2014-2015 14.3% 11.0% 3.3%
2015-2016 15.3% 12.6% 2.7%
2016-2017 15.4% 12.4% 3.0%
2017-2018 17.2% 13.7% 3.5%
2018-2019 16.3% 13.9% 2.4%
Source: Economic Survey of Pakistan 2017-2018 &2018-19

The data tabulated above shows that in FY 2013-2014 tax-to-GDP ratio was at 10.2%, which increased to 12.6% in FY 2015-2016, but fell to 12.4% in FY 2016-2017. For 2018-2019, it stands at 13.9%%. Compared to other neighbouring countries, Pakistan’s tax – GDP ratio is relatively low. Comparison is available in the following table:

Table 4: GDP Ratios

2013 2014 2015 2016 2017 2018 2019
Sri Lanka 33.2 33.7 33.8 33.5 34.2 33.9 34.1
Nepal 8.7 15.9 16.7 18.7 21.0 21.2 22
India 8.9 15.0 15.8 15.9 15.9
Bhutan 10.0 13.3 13.8 13.2 13.3 12.9 13
Pakistan 10.3 10.2 11.0 12.6 12.4 13.7 13.9
Bangladesh 8.6 8.5 10.8 11 10.9 10.8
Afghanistan 7.6 7 6.8 6
Source: Pakistan Raises Revenue Project – World Bank Report

The low tax-GDP ratio reflects poorly on tax administration and its efforts in the enhancement of tax base of the country which shows that neither strict enforcement measures are taken nor culture of tax compliance has been developed in Pakistan. Consequently, the country looks for a short term documentation and revenue generation measures such as Tax Amnesty Schemes.

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