FBR initiates study of 15 sectors to identify tax gap

KARACHI: The Federal Board of Revenue (FBR) has initiated a study to identify gap between the potential and actual tax paid by leading sectors of the economy, a senior tax official said on Wednesday.

“The revenue body has selected 15 leading sectors where wide tax gap is identified through preliminary analysis,” the official said on the condition of anonymity. The sectors to be analysed included oil and gas, automobiles, cigarette and tobacco, iron and steel, chemicals, paper and paper board, textile, edible oil, cement, sugar, pharmaceuticals, fertiliser, telecom, finance and insurance, and hotels and restaurants.


The study was initiated under the guidelines of the World Bank-funded tax administration reform programme (TARP) for broadening the tax base and removal of distortion from the tax system, the official said.

Giving details on the study of the selected sectors of the economy, the official said that the analyses would focus on input-output relationships, import and export of goods and their scope of services.

The official said that to finalise the study, the revenue body is hiring a private company, which would, with the help of tax officials, conclude the study and present its recommendations for future course of action.

“The private firm would be shared data of sectors, including production capacity, input-output relationship, cost of sales, cost of production, and profits earned by these sectors,” the official said.

The FBR in a report early this year highlighted the issue, saying that to have meaningful increase in revenue, there is a need to widen the tax base to the sectors that are either outside the tax net or are under-taxed.

“Probably, it is about time to have a fresh review of the situation to have an evenhanded treatment for every sector, according to its tax paying capacity,” the report said. It is important that the equity and efficiency consideration continue to be the driving forces behind modernisation of the taxation system, it added.

Tax experts said that the sectoral study is needed due to structural weaknesses in the national tax system, which heightens its vulnerability to the economic crisis. The revenue is raised in an inefficient way by favouring certain sectors and economic activities over others, they said. This has created excess taxation burden and is deterring people from investing in the most productive sectors and earning more from the resources available, the experts added.