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VAT Introduction To Reduce Pakistan's Future Fiscal Deficits

Monday, February 15, 2010

After a recent cabinet meeting, it was announced that Pakistanís government has agreed a budget strategy to reduce the countryís 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 Pakistanís 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 governmentís 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 governmentís 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.