Tax-to-GDP ratio down

ISLAMABAD: The budget strategy paper for 2014-17 presented to the federal cabinet by Finance Minister Ishaq Dar sets ambitious targets for reduction of debt build-up and fiscal deficit, but concedes that the tax-to-GDP ratio has declined during the current year despite an increase in tax rates. According to sources, the minister informed the cabinet on Thursday that even though tax collection had improved by more than 15 per cent during this year, the tax-to-GDP ratio had dropped significantly. The government had set a target to achieve the ratio of 10.9pc this year, which has now been brought down to 10.5pc on the basis of the collection in the first 10 months and projected collection in the remaining six weeks. This was despite the fact that the general sales tax on all products and services was increased by 1pc by Mr Dar in his first budget speech and withholding tax was also imposed on seven key sectors. A number of measures for documentation of economy to broaden the tax base and increase the tax-to-GDP ratio announced in the budget were gradually withdrawn over the course of the fiscal year. The strategy paper projected the ratio to grow to 11.3pc by the end of the next fiscal year, followed by 12pc in 2015-16 and reaching up to 12.7pc in 2016-17. The government has set a target of 5.5pc GDP growth in 2014-15 which will be increased to 7pc and 7.2pc for the next two years. It was reported that the GDP growth rate this year was estimated at 4.14pc against a target of 4.4pc. The document projected the public debt-to-GDP ratio at 60.2pc at the end of the current fiscal year, lower than the 61.3pc budget target. The target is to reduce public debt to 56.7pc of GDP in 2014-15, 53.2pc in 2015-16 and 49.8pc in 2016-17. The foreign exchange reserves were $13.9 billion on May 13 and will increase to $19bn by the end of the next fiscal year, $22bn in 2015-16 and $22.5bn by 2016-17. The budget paper put the current year’s investment-GDP ratio at 13.5pc and set a target of 16.5pc for the next year, 20.2pc by 2015-16 and 21pc by 2016-17. The cabinet was informed that the inflation rate was expected to settle down at 8.5pc this year against a target of 8pc, but would remain stable at the same level during the next three years. The government expects to achieve a consolidated fiscal deficit level of 5.7pc of GDP this year against the budget target of 6.3pc. The figure will be brought down to 4.8pc next year and stabilised at 4pc over the subsequent two fiscal years. A cabinet member told Dawn that the finance minister had not presented a traditional budgetary strategy paper containing a detailed macroeconomic framework along with strategies to achieve the targets as had been customary in the past. He said the government did not want the entire paper to be leaked to the public before announcement of the budget in the National Assembly, most probably on June 3. He said that unlike previous years the federal cabinet did not give a formal approval to the strategy paper and had not so far shared it with the standing committees of parliament. The minister and Finance Secretary Dr Waqar Masood Khan gave a presentation during the cabinet meeting on Thursday with the help of two slides whose copies were not distributed among other ministers. The finance secretary and the ministry’s spokesman Rana Assad Amin Khan did not attend calls to comment. Published in Dawn, May 17th, 2014