KARACHI : The Federal Board of Revenue (FBR) is unlikely to achieve yearly revenue target and even if the target is achieved, the tax-to-GDP ratio would be less than 10 percent, which is one of the lowest in the world. According to State Bank of Pakistan's (SBP) Monetary Policy Statement (MPS), the FBR provisional tax collection stood at Rs 1,026 billion during the first 10 months (July-April) of the current fiscal year.

The 10 months collections indicate that the board has to collect another Rs 354 billion in the next two months (May-June) to meet the yearly collection target of Rs 1,380 billion. As the monthly average collection in the last 10 months remained Rs 102 billion, therefore, it would be quite challenging to achieve the target by collecting some Rs 354 billion in two months with monthly average of Rs 127 billion.

"Even if the annual revenue collection target is met, the FBR tax-to-GDP ratio is likely to be less than 10 percent, which is one of the lowest in the world," the SBP said. According to MPS, for medium term fiscal sustainability which is necessary for overall macroeconomic stability, it is of utmost importance that effective measures should be taken to increase the tax-to-GDP ratio and current expenditures of the government be reduced.

SBP has also called for reduction is revenue deficit, the difference between total revenues and current expenditure. "Revenue deficit must be brought down to zero, as stipulated in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005," MPS said and added that it was 1.5 percent of GDP in FY09 and may cross 2 percent of the expected GDP in FY10.

SBP has also discouraged the reduction in development budget and said that cutting development expenditures may provide immediate relief but damages the prospects of much needed investment in infrastructure such as electricity generation and human capital. This, in turn, limits the future production capacity of the economy and adversely affects the inflation outlook as the gap between aggregate demand and aggregate supply widens, it added.