VAT Introduction To Reduce Pakistan's Future Fiscal Deficits

by Mary Swire, Tax-News.com, Hong Kong

15 February 2010

After a recent cabinet meeting, it was announced that Pakistan’s government has agreed a budget strategy to reduce the country’s public sector deficit over the three-year period from 2010-11 to 2012-13, which will be presented to parliament in the first half of this year.

It was reported that the budget deficit was reduced in 2009-10 to 5.3% of gross domestic product (GDP), from around the 8% of GDP that had been seen only two years previously. The target is to reduce the deficit to 2.3% of GDP by 2012-13.

It has been estimated that the gap between Pakistan’s potential and actual tax collection is between PKR350bn (USD4bn) and PKR500bn (USD5.9bn). It is hoped that new tax measures can now be implemented so that the government’s targeted annual tax revenues of 13.9% of GDP can be reached.

It is expected that, while improved tax administration will help in achieving the government’s tax targets, revenues from the new value-added tax (VAT), which is due to be implemented by July 2010, will be key in that regard. The government has now said that VAT will increase annual tax revenue by an estimated 2.4% in the next three years.

Recommended