Third Quarterly Report for FY06

5 Fiscal developments

5.1 Overview Figure 5.1: Balance Indicators (Annual)

Fiscal indicators computed Fiscal balance Revenue balance Primary balance
using the Revised budgetary 3.0
Estimates (MBE) depict a
2.0
weakening for the second
successive year in FY06; not 1.0
only has the fiscal deficit 0.0
widened, the revenue and
percent
primary balances have also -1.0
declined visibly. However, a -2.0
significant part of the FY06
-3.0
deterioration in fiscal
indicators reflects the impact -4.0
of the earthquake relief and -5.0
rehabilitation expenditures.
FY02

FY03

FY04

FY05*

FY06

FY06**
MBE
Adjusting for these, the fiscal
picture improves somewhat,
* Adjusted for statistical discripancy of Rs 78.5 billion
with the re-emergence of
** Adjusted for "Earthquake" expenditure
primary and revenue surpluses,
but the fiscal deficit continues
to show a marginal weakening (see Figure 5.1). Moreover, it is encouraging to
note that the increase in deficit stemmed substantially from a strong growth in
development spending rather than a surge in current expenditure.

The FY06 tax data also reveals continued structural weaknesses in the tax regime,
as evident in the continued low tax-to-GDP ratio, the heavy reliance on import-
related taxes and potentially volatile non-tax revenues, and inability to broaden the
tax base. The risk to the country’s fiscal profile from these weaknesses is
compounded by the gradual weakening, evident in expenditure management.

The FY07 attempts to address some of the weaknesses, with measures to expand
the tax net and thereby the dismal tax-to-GDP ratio. The CBR has been given a
target of Rs 835 billion for FY07, which is Rs 131 billion (or 18.6 percent) higher
than the revised target of Rs 704 billion for FY06. Moreover, the government
appears to be seeking to lower its reliance petroleum surcharges (and cushion the
domestic economy partially from a rise in international oil prices). Unfortunately,
the continued requirements for earthquake rehabilitation expenditure, and the
massive increase in PSDP mean that the budgetary deficit will remain high at 4.2
percent of GDP in FY07.

55
The State of Pakistan’s Economy

In this context, it is also important that the government lays before the National
Assembly the fiscal policy statement in compliance with section 6 of the Fiscal
Responsibility and Debt Limitation Act, 2005. Such statements would have helped
explaining the government’s position on how emerging fiscal indicators accord
with the principles of sound fiscal and debt management.

5.2 Revenues
Total revenue is estimated to reach at Rs 1095.6 billion during FY06, up 21.7
percent YoY as compared to the growth of 13.8 percent YoY in FY05. The major
contribution in this relatively high revenue growth was equally strong from both
tax revenues and non-tax revenues (see Table 5.1).

Table 5.1: Summary of Public Finance

billion Rupees
FY02 FY03 FY04 FY05 FY06 YoY Change
R.E MBE FY05 FY06
1 Revenue Receipts (a+b) 624.1 720.8 791.1 900.0 1095.6 13.8 21.7
a) Tax Revenue 478.1 555.8 608.4 659.4 805.6 8.4 22.2
b) Non-Tax Receipts 146.0 165.0 182.7 240.7 290.0 31.7 20.5
Total Expenditure
2 (a+b+c) 826.3 898.2 955.8 1117.0 1423.0 16.9 27.4
a) Current 700.2 791.7 774.9 864.6 1097.9 11.6 27.0
b) Development 126.3 129.2 160.5 227.7 326.7 41.9 43.5
c) Net Lending to PSEs
etc. -0.2 -22.7 20.4 24.8 -1.6 21.4 -106.5
d) Statistical
discrepancy -11.7 3.2 78.5 -100.0
Revenue
3 Surplus/Deficit (1-2.a) -76.1 -70.9 16.2 35.4 -2.3 118.8 -106.5
4 Overall Deficit (1-2) -190.5 -180.6 -164.7 -217.0 -327.4 31.8 50.8
As per cent of GDP (mp)
1 Revenue Receipts (a+b) 14.2 14.9 14.0 13.7 14.2 … …
a) Tax Revenue 10.9 11.5 10.8 10.0 10.4 … …
b) Non-Tax Receipts 3.3 3.4 3.2 3.7 3.8 … …
2 Total Expenditure (a+b) 18.8 18.6 16.9 17.0 18.4 … …
a) Current 15.9 16.4 13.7 13.1 14.2 … …
b) Development 2.9 2.7 2.8 3.5 4.2 … …
c) Net Lending to PSEc
etc. 0.0 -0.5 0.4 0.4 0.0 … …
Revenue
3 Surplus/Deficit (1-2.a) -1.7 -1.5 0.3 0.5 0.0 … …
4 Overall Deficit (1-2) -4.3 -3.7 -2.9 -3.3 -4.2 … …
Source: Up to FY04 Economic Survey 2004-05, for FY05 and FY06 Economic Survey 2005-06 due to
inconsistent data series
* Adjusted the statistical discrepancy of Rs 78.5 billion for the purpose of analysis

56
 Third Quarterly Report for FY06

The 22.2 percent rise in tax revenues is primarily realized through the taxes on
goods and services (sales tax, excise, and surcharges) that rose to Rs 391 billion
from Rs 323.5 billion in FY05. Though excise duty (FED) collection grew slowly
(1.5 percent), the high growth in sales tax (up 26.0 percent) and surcharges (up
19.9 percent) contributed to the sharp rise in tax revenues. It is notable, that
revenue from surcharges is likely to be higher than the modified budget estimates
of Rs 32.6 billion, because of exceptionally high revenue generation from PDL in
the third quarter as the Government achieved its PDL revenue target of Rs 15.9
billion full year FY06 by the third quarter, while the gas development surcharge
provided Rs 15.7 billion accounting for 94.5 percent of the annual modified
budgetary target.

Non-tax revenue is also estimated at Rs 290 billion, of which Rs. 247.2 billion is
from federal resources while the rest from the provincial resources. The analysis
in this respected is limited due to data constraints, but quarterly data indicates that
the significant contributor to the 31.7 percent rise in the non-tax revenues are
logistic supports payments, SBP profits and dividend receipts.

5.3 Expenditure
Total expenditure in FY06 is
Table 5.2: Composition of Current Expenditure
estimated at Rs 1423.0 billion,
billion Rupees
up 27.4 percent YoY (see Table Growth
5.1), led mainly by a 43.5 FY05 FY06 FY05 FY06
growth in development Current Expenditures 943.1 1097.9 21.7 16.4
expenditure. Of which
Interest Payments 257.2 273.1 11.8 6.2
Almost 55 percent of the total Federal 222.7 241.2 13.5 8.3
expenditure was accounted for Domestic 180.1 200.6 16.3 11.4
by interest payments (19.2 Foreign 42.6 40.6 2.9 -4.7
percent), defense, (16.9 Provincial 34.6 31.9 1.9 -7.7
percent), current subsidies and Defense 211.7 241.1 17.4 13.9
general administration (17.6 General
percent) (see Table 5.2). Administration 130.5 157.4 8.8 20.5
However, encouragingly, the Current Subsidies 66.7 92.7 -1.8 39.0
Development and Net
growth in both the interest Lending 252.5 325.1 39.6 28.8
payments and defense PSDP 227.7 326.7 41.9 43.5
expenditures was visibly lower Net Lending 24.8 -1.6 21.4 -106.5
than in the previous year (the
Source: Economic Survey 2005-06
spending has not increased, in
real terms). The deceleration in the growth of interest payments was essentially
due to declines in foreign debt payments and provincial interest payments.

57
The State of Pakistan’s Economy

However, substantial growth is visible in current subsidies and general

administration.

Development expenditure increased to Rs 326.7 billion with a YoY increase of

43.5 percent. Of the total PSDP outlay, the federal government expenditure is
estimated at Rs 92.9 billion on infrastructure development while 85.3 billion is on
social development. On the other hand, quite surprisingly, the net lending to PSE
is estimated to be –1.6 billion, which appears inconsistent with the fiscal data for
July-Mar FY06, in which all the PSEs except Pak Steel, declared losses for the
period.

5.4 Financing
The overall budgetary deficit of Table 5.3: Financing of Budget Deficit
Rs 327.4 billion during FY06 is
billion Rupees
estimated to be financed by Rs
118.3 billion from external FY05 FY06
resources while the rest is Total financing 217 327.4
estimated to be financed from
External resources (net) 120.4 118.3
the internal resources (see Table
5.3). Internal resources 96.6 209.1
Banking system 60.2 96.7
Of the internal resources, the Domestic non-bank 8.1 22.4
government is likely to meet the
Privatization proceeds 28.3 90.0
financing gap of Rs 96.7 billion
from the banking sector, Rs 22.4 Source: Ministry of Finance
billion from the non-bank, while the Rs 90 billion from the privatization proceeds
of which Rs 55.2 billon has already been realized by end Q3-FY06.

5.5 CBR Tax Collection

Aided by strong growth in economic activities and an exceptional rise in imports,
the CBR tax collections have been substantially above the original targets for
FY06. The growth in the CBR net tax receipts July-May FY06 have averaged 22
percent YoY, and are likely to comfortably exceed the original Rs 690 billion
annual target. The growth in CBR revenues is quite encouraging, as it is
significantly higher than the 13.6 percent growth in the same period of FY05, and
given that the ratio of CBR taxes to GDP has improved in FY06.

If this trend persists in FY07 onwards, it will be a good omen for the public
finances as it would help increase the country’s dismal tax-to-GDP ratio and
reverse the decline in the elasticity estimates witnessed in FY05.

58
 Third Quarterly Report for FY06

The analysis of monthly tax Figure 5.2: Monthly Tax C ollection

collections show that except FY05 FY06 FY06 T arget
for the months of Nov, Jan, 80
Feb and Apr, CBR met all its
monthly targets set for the year
(see Figure 5.2). In terms of 60
individual taxes, the direct
taxes and sales-tax surpassed

billion Rs
40
their targets, while the
collection on account of
Federal Excise Duty (FED)
20
and Customs remained quite
below the target (see Table
5.4). Further, customs and 0
federal excise duty lagged
Aug
Jul

Sep

Feb
Dec

Mar
Apr
Nov

Jan

May
Oct
behind their targets in seven
months up to May in the
current fiscal year.

Table 5.4:Tax Collection up till May

billion Rupees
Net tax collection Percent of
Head Target up to May target Growth
FY06 May FY05 FY06 Annual May FY05 FY06
Direct taxes 214.0 169.8 146.4 181.9 85.0 107.2 9.8 24.3
Indirect taxes 476.0 425.4 354.1 428.6 90.0 100.8 15.3 21.0
Sales tax 276.5 248.0 207.8 259.1 93.7 104.5 8.9 24.7
Federal excise
duty 59.5 53.2 47.1 51.5 86.6 96.9 18.7 9.5
Customs 140.0 124.2 99.3 118.0 84.3 95.0 29.3 18.8
Total 690.0 595.2 500.5 610.6 88.5 102.6 13.6 22.0
Source: Central Board of Revenue

Structural analysis reflects that the share of import-related taxes in total tax
collection has continuously grown in the last five years. These taxes contributed
Rs 238.7 billion in the revenue up to Q3-FY06, accounting for almost 48.7 percent
of total CBR taxes. The trend shows that although overall share of the import-
based taxes in total taxes has slightly fallen in Q3-FY06 yet it remains of
considerable size, suggesting the vulnerability of tax receipts if the import growth
falls back to the relatively low historical norms (see Figure 5.3).

59
The State of Pakistan’s Economy

Refund and Gross Collection

Trends in gross collection
depict consistent growth over Figure 5.3: Import Taxe s
T otal taxes
the last six years. Up to May Import taxes
FY06 gross collection Import taxes as % of total taxes (RHS)
increased by 16 percent as 525 55
compared to 14.1 percent

Import taxes as % of total taxes

450
during the same period last 52
year (see Figure 5.4). 375
Refunds, however, sharply
billion Rs
300 49
declined by 16.3 percent as
compared to 16.5 percent 225 46
increase in the corresponding 150
period last year, reflecting the 43
75
impact of various policy
measures, principally the zero 0 40
rating of sales tax on key FY02 FY03 FY04 FY05 FY06
export-oriented products and
universal self-assessment scheme.
Figure 5.4: Gross Collection and Re fund
Direct Taxes Gross collection
Refunds
During July to May FY06, Ratio of refunds to gross collection (RHS)
direct tax collection stood at 800 21
Rs 181.9 billion against the 700
18
period target of Rs 169.8 600
billion with a YoY growth of 500
14
billion Rs

percentage
24.3 percent (see Table 5.4). 400 11
A break-up of direct taxes, 300
7
which is available only for the 200
Jul-Mar period, shows that 100 4
around 95 percent of total 0 0
direct taxes were contributed FY01 FY02 FY03 FY04 FY05 FY06
by income tax.

Within the income tax, withholding taxes contributed 55 percent of receipts while
the share of voluntary payments was 39.5 percent, as both the components also
registered strong growth (see Table 5.5). It is, however, interesting to note that the
share of various components of income tax has not shown any significant
structural change over the last five years (see Figure 5.5) suggesting that the tax
reforms of recent years have yet to contribute significantly to improving the tax
collection profile.

60
 Third Quarterly Report for FY06

Table 5.5: Major Components of Income Tax during Q3

billion Rupees
Growth
FY02 FY03 FY04 FY05 FY06
FY05 FY06
Voluntary payments 36.9 25.2 40.4 52.4 67.2 29.8 28.2
Collection on demand 7.7 5.4 9.0 8.3 9.3 -8.2 13.0
Withholding taxes 53.6 44.0 62.7 73.3 93.5 16.9 27.5
Others 0.1 0.7 0.4 0.5 0.1 42.9 -84.6
Gross total 98.3 75.3 112.5 134.5 170.1 19.6 26.5
Refund 8.3 5.4 11.7 19.8 24.3 69.1 22.5
Total Net 90.0 69.8 100.7 114.7 145.8 13.9 27.1
Source: Central Board of Revenue

A break-up of the income tax, Figure 5.5: Share of the Components of Income Tax
up to March FY06, shows that upto Q 3
almost half of the collection on Voluntary payments
Collection on demand
demand comprises of arrears Withholding taxes
(Rs 4.4 billion) while the Others
current demand contributed Rs 60
4.9 billion. Of the withholding 50
taxes, major revenue heads
were contracts (Rs 29.4 40
billion), imports (Rs 19.5
percent

billion), salaries (Rs 10.2 30

billion), and exports (Rs 7.5
20
billion).
10
Indirect Taxes
Collection from indirect taxes 0
rose 19.6 percent YoY to Rs FY02 FY03 FY04 FY05 FY06

337.1 billion by end Q3-FY06.

Approximately 60 percent of the indirect taxes were accounted for by sales tax
collection with federal excise duty (12 percent) and the customs (28 percent)
contributing the remainder.

Sales Tax
With a net collection of Rs 202.4 billion during first three quarters of FY06, sales
tax surpassed period target of Rs 196.6 billion registering a YoY growth of 22.4
percent.

61
The State of Pakistan’s Economy

Sales tax on imports contributed around Rs 121.1 billion, approximately 59.8

percent, that portrays high dependence on consumption of imported commodities.
Major revenue came from POL (Rs 17.1 billion), vehicles other than railway/
tramway (Rs 13.6 billion), vegetable oil (Rs 4.7 billion), and electrical machinery
(Rs 4.2 billion). On the other hand, domestic sales tax provided Rs 81.3 billion, of
which major revenue spinners were POL (Rs.36.8 billion), services (Rs 21.4
billion) and sugar & sugar confectionery (Rs 6.0 billion).

Customs Duty
During July-March FY06, collection from customs stood at Rs 95.1 billion with a
YoY increase of 18.7 percent. The growth in customs duty, however, does not
seem to be compatible with the 43.2 percent growth in imports during Q3-FY06.

Major revenue sources were vehicles, vegetable oil, POL, mechanical appliances
and electrical machinery.

Federal Excise Duty (FED)

With a shift to VAT- mode sales Table 5.6: FED Collection up to Q3
tax, federal excise duty is billion Rupees
considered as a dying tax, but it Major
FY04 FY05 FY06
Growth
commodities FY05 FY06
continues to remain an
Beverages 1.6 1.7 2.6 4.9 53.6
important source of revenue.
Beverages
During Q3-FY06, the FED 0.8 1.1 1.0
concentrate 42.4 -9.4
collection remains below the Cigarettes &
12.1 14.6 16.4
tobacco 20.9 12.0
target in five months and also
Cement 6.7 7.9 9.1 17.4 14.6
lags behind its overall target of Natural gases 3.6 4.1 4.0 12.2 -1.0
Rs 41.3 billion with a collection POL products 2.5 2.9 2.6 14.1 -10.0
of Rs 39.6 billion. Sub-total 27.4 32.3 35.7 17.9 10.5
Others 2.2 2.0 1.3 -7.0 -36.6
Major revenue spinners of the Local goods
29.6 34.4 37.0 16.1 7.7
(gross)
FED remained the same as in Imported goods
0.9 2.0 2.9 129.2 42.7
the past, that is, beverages, (gross)
beverages concentrates, Total (gross) 30.5 36.4 39.9 19.3 9.6
cigarettes & tobacco, cement,
Refund &
natural gas and POL products, rebates
0.1 0.0 0.2 -42.3 490.6
constituting around 96.5 percent Total (net) 30.4 36.4 39.6 5.9 19.5
of the revenue generated from Source: Central Board of Revenue
the locally produced goods. It is
noteworthy that there is a 10 percent YoY decline in the revenues from the POL
products and a further 9.4 percent decline in revenues from beverages concentrates
(see Table 5.6), while industrial growth depicts a YoY increase of 2.3 percent

62
 Third Quarterly Report for FY06

growth in POL production, 4.7 percent in Cigarette, 9.8 percent in Cement, and
2.3 percent in POL.

5.6 Federal Budget FY07

The budgetary measures Table 5.7: Summary of Public Finance
announced in the Federal
Rs. in billion
Budget 2006-07 broadly focus
on providing a conducive FY05 FY06 FY07
environment for economic
Total revenue receipts 900.0 1095.6 1188.0
activity in the country. In
Tax revenue 659.4 805.6 954.0
addition, the Government’s
Non-tax revenue 240.7 290.0 233.0
policy of increasing revenues
Total expenditure 1117.0 1423.0 1561.5
through broadening the tax base
Current 943.1 1097.9 1152.0
is implemented through various
Development and Net
budgetary measures. Lending
252.5 325.1 435.0
The Government has announced Statistical discrepancy 78.5 - 25.5
a substantial increase in Overall fiscal deficit 217.0 327.4 373.5
development spending in Without earthquake spending - 262.4 323.5
subsidies on essential Financing of fiscal deficit 217.0 327.4 373.4
foodstuffs. From the budgetary External (net) 120.4 118.3 171.7
outlay of more than Rs 1.5 Domestic 96.6 209.1 201.7
trillion, Rs 435 billion have Non-bank financing 8.1 22.4 6.7
been allotted to public sector Bank financing 60.2 96.7 120.0
development; a 60 percent Privatization proceeds 28.3 90.0 75.0
increase from the Rs 272 billion (as percent of GDP)
allocated in FY06 and 38.7 Total revenue 13.7 14.2 13.5
percent higher than the revised Tax revenue 10.0 10.4 10.8
(Rs 325.1 billion) (see Table Total expenditure 17.0 18.4 17.7
5.7). About Rs 8 billion have Current expenditure 14.3 14.2 13.1
been allocated for subsidizing Development expenditure 3.8 4.2 4.9
household essentials, Overall fiscal deficit 3.3 4.2 4.2
particularly foodstuffs, in state- Fiscal Deficit (without earthquake) 3.4 3.7
run utility stores, up from Rs 2
billion currently, to ease the impact of inflation, currently at around 8 percent.

The budget is pro-poor and is aimed at sustaining growth. Over the period from
2001 to 2005 regardless of the fact that poverty has declined, the income
distribution has worsened in the country. The ratio of the highest to the lowest
quintile which measures the gap between the rich and the poor also widened to
some extent from 3.76 in 2001 to 4.15 in 2005. At regional level, the gap between

63
The State of Pakistan’s Economy

the rich and poor in urban areas has widened relatively at higher pace – increase
from 10.40 to 12.02. In contrast, the gap between the rich and poor in rural area
remained more or less unchanged, that is, from 2.22 to 2.19. In this backdrop, the
budget aims to address the issue of growing rich-poor gap by taxing the richer
segments of the society and by providing relief and concession to the poor
amounting to Rs 109 billion. The grant of subsidies in various sectors is to attain
the objective of pro-poor growth.

The Budget may be regarded as ‘industry-neutral’ as it places little emphasis on

industry and trade. However, it is ultimately going to benefit the businesses as the
budget focuses more on the sustained growth of the economy.

On the expenditure side, defence spending has been increased to Rs 250 billion (3
percent of the GDP), up Rs 27 billion from the Rs 223.5 billion in FY06. The
Federal budget on education and health shows YoY net increase of Rs 2.1 billion
and Rs 0.3 billion, respectively; but in terms of GDP there is no improvement.
However, we should recognize that the overall impact of the government spending
on education, health, and population welfare sectors would be available after the
provincial budgets come out.

With a budgeted revenue of Rs 1083 billion, the overall budget deficit (Rs 373.5)
is estimated to be 4.2 percent of the GDP (including earthquake rehabilitation
expenditure), mainly due to the increase in PSDP. This is consistent with the
Fiscal Responsibility and Debt Limitation Act, 2005.

CBR has been assigned a target of Rs 835 billion for FY07, which is Rs 131
billion (or 18.6 percent) higher than the revised target of Rs 704 billion for FY06.
This will increase the tax-GDP ratio of CBR taxes from the current 9.1 percent to
9.5 percent. This is a very positive development.

The tax system in Pakistan is characterized by narrow tax base, disproportionate

tax burden on different sectors and low tax buoyancy, contributing to the low tax-
to-GDP ratio. It may be recognized; however, that the Federal Government and
CBR have limited ability to increase the tax/GDP ratio for the reason that the
taxability of two important sectors of the economy offering enormous revenue
potential (agriculture income tax and sales tax on services) are provincial
subjects. Unfortunately, the receipts from these provincial taxes are not reflective
of the share of these sectors in the total economy. Tax/GDP ratio for the federal
government is 9.9 percent, whereas it is only 0.6 percent for provincial
governments.

64
 Third Quarterly Report for FY06

It is instructive to note that sales tax is the most prolific tax in terms of revenue
generation in Pakistan. Its widespread acceptability has increased its share in
federal tax receipts from 23.4 percent in FY99 to 40.0 percent in FY06. The ratio
of sales tax to GDP has also increased from 2.45 percent in FY99 to 3.7 percent in
FY06. However, the services sector, which contributed 52.3 percent in the GDP in
FY06, mostly remains outside the scope of sales tax and the collection of sales
tax/federal excise duty from this sector is very low. During FY05, the sales
tax/CED collection on services amounted to Rs 27.9 billion only. The main
portion of Rs 20.4 billion was generated through telecommunication services.
Other services contributed Rs 3.6 billion to the total sales tax collection of Rs 240
billion. The contribution of retail and wholesale trade to the sales tax collection
was very dismal (Rs3.3 billion), representing 0.26 percent of its value added in the
GDP (mp) which amounted to Rs 1251 billion.

To meet the growing challenge of higher revenue collection, the Budget FY07 has
introduced some new taxation measures which are aimed at improving resource
mobilization and broadening of tax base in the country.

A welcome development has been the move to bring some of the services
(financial services, franchise services, services provided by foreign exchange and
money changer) into the excise regime. Such taxation measures would broaden the
tax base, mobilize resources, and make the tax system more equitable. It would be
desirable to bring all other services with significant revenue potential into the tax
net, so as to increase the tax-GDP ratio and make the tax system more equitable.

Another Wealth-tax Act, 1963 was suspended (held in abeyance) from July 1,
2001. Prior to its suspension, wealth tax contributed nearly Rs 4.0 billion (in
FY00) to the exchequer. In the absence of wealth tax and given the fact that
enormous capital gains (on sale of property, land, shares, etc.) are made by the
rich segment of society, it may be prudent to impose and implement capital gains
tax seriously. This will improve income distribution in the economy as the rich
will pay more taxes. This year, the Government has increased the rate of CVT on
shares from 0.01 to 0.02 percent but this will hardly generate significant additional
revenues. The CVT collected from stock exchanges in Pakistan in FY05 amounted
to Rs 2.068 billion, and in FY06 Rs 0.922 billion have been collected up to March.
We can roughly estimate that this raise in tax rate would fetch additional Rs 1.5
billion in FY07.

It is important that taxes fall proportionately on all the sectors. The risk of
deterioration in fiscal performance also needs to be guarded against. Some key
risks include: (1) heavy dependence on import-related taxes, accounting for nearly

65
The State of Pakistan’s Economy

half of the share in collections (receipts could therefore slowdown if, as expected,
import growth falls back to historical norms); and (2) dependence on potentially
volatile non-tax revenues. Thus, there remains a clear need for further tax effort to
raise the tax-GDP ratio substantially over the next few years. In this context, the
estimated increase in the tax-GDP ratio in the next year needs to be monitored,
and particular attention needs to be given to the broad-basing of the tax net and
improving collections from under-taxed areas of the economy such as agriculture,
the services sector.

66