• Wednesday, Jan 27, 2021
  • Last Update : 07:40 pm

Tax-GDP ratio to improve by FY23

  • Published at 12:52 am December 4th, 2020
Web_Tax-taxation-Bigstock
Bigstock

The tax to GDP ratio in the current fiscal year has been estimated at 11.9 per cent

The government has projected a marginal improvement in the tax to gross domestic product (GDP) ratio in fiscal 2022-23 despite the pandemic taking a toll on the country's revenue collections this financial year.

The tax-to-GDP ratio is a ratio of a nation's tax revenue relative to its gross domestic product, the value of goods and services produced in a country during a certain period. The ratio is also a marker of how well the government controls a country's economic resources.

According to an official document, the tax to GDP ratio in the current fiscal year has been estimated at 11.9 per cent, while it was 12.4 per cent in fiscal 2019-20. 

Even though the public health crisishas hit the revenue-generating sectors hard, the government estimates it would rise to 12.2 per cent in fiscal 2022-23.

The document states that of the 12.2 per cent of the projected revenue-GDP ratio in the next fiscal year, 10.6 per cent would come from the National Board of Revenue (NBR), 0.6 per cent from non-NBR sources and the remaining 1.1 per cent from non-tax sources.

Similarly, this fiscal year, the government has projected to get 10.4 per cent from the National Board of Revenue (NBR), 0.5 per cent from non-NBR sources and 1 per cent from non-tax sources.

In fiscal 2019-20, the government had originally projected to boost the tax to GDP ratio to 13.1 per cent -- 11.3 per cent from NBR, 0.5 per cent from non-NBR sources and 1.3 per cent from non-tax sources. However, the target was subsequently lowered to 12.4 per cent in the wake of Covid-19.

Due to the implementation of the new value-added tax (VAT) law, the revenue collection has declined, as per the document. Currently, the tax to GDP ratio of the country is much lower than the neighbouring and other developing countries.

According to data from the October 2019 issue of the World Economic Outlook, the tax to GDP ratio of the country has been 9.9 per cent on an average since 2015-2019, while it is 19.8 per cent for India, 23.9 per cent for Nepal, 14.7 per cent for Pakistan and 13.5 per cent for Sri Lanka.

The ratio is 25.6 per cent for developing countries and 35.9 per cent for developed countries, according to the data.

The document says that the government has taken various reform initiatives to improve the overall revenue collection. Automated systems have been introduced for VAT, and other tax collections, along with bonded warehouses. The new Customs Act is also on the anvil.

Apart from the reforms programmes, modernisation of the tax administration, expansion of tax net, development in tax compliance and law amendment and simplification would create a significant positive impact on revenue collections in the future, as per the document.

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