This blog is written by Mr. Haseeb Zaman, Associate Taxation and Corporate Services. Please read this blog and provide your valued comments.
Taxation is an extremely important source of backing for any state to finance the running of the governmental functions. Even the oil rich Arab states are now beginning to recognize the importance of this and starting to shift towards a lasting economy with citizens contributing to the national treasury with their share of the taxes.
To put it simply, in all global economies there is taxation, both direct and indirect (in different combinations). Direct taxation is a tax directly levied on an individual or business’s income while indirect taxation entails taxes on products and services whereby consumers are made to pay taxes when they consume these.
The tax system of Pakistan continues to under-perform particularly in its ability to raise adequate revenues. A culture of tax avoidance has long engulfed the business horizons. The bases of the most important taxes, such as Personal and Corporate Income Tax and the General Sales Tax (GST), continue to be narrow and the level of tax evasion remains high. Pakistan’s need for spending on social services such as education, health, and capital infrastructure are likely to increase in the near future as governments pursue a strategy of sustained economic growth. Most political manifestos brought forward by political parties spell out major expenditure programs while expressing a desire to increase tax collection. To reach the desired taxation level in Pakistan, an in-depth policy reforms programs needs to be formulated by policymakers. This will require a detailed analysis of tax structures and tax administration
What is actually required is to restore the faith of the taxpayers by implementing a multi-dimensional tax reforms agenda where:
- Taxpayers are encouraged and incentivized for paying taxes.
- Taxpayers are facilitated by making the process easier and fairer, focusing on maximum automation in order to stem out corruption.
- Instead of increasing the tax rates the tax net is constantly widened.
- More focus is given to direct taxation.
- Meaningful tax rebates and reliefs are introduced for the less able sections of the society.
- A system of proportionate taxation is adopted with more affluent contributing more to the treasury.
- Certain exempt sectors are brought into the tax-net (subsidies can be given for assisting any under-pressure areas/products).
- Tax rebates and incentives are introduced to encourage foreign/local investments in key sectors with tax-breaks for transfer of technology etc., as may be required in a particular sector.
- Tax money is actually spent on public welfare and infrastructure projects, which will improve the spending capacity and the business environment in Pakistan.
- The massive corruption in public contracts/projects, now routinely in the range of 40-50% of tender values, is eradicated for better and efficient use of public money through revamping the pay and accountability structures.