KARACHI, Oct 22: The burden of indirect taxes which directly hurt the general public and inflationary in its nature has increased by 74 per cent in the last six years, while the sales tax alone remained the highest earning tool among the indirect taxes.
According the latest official data of taxes composition, the contribution of indirect taxes was 69 per cent in the total tax collection in 2004-05 reflecting heavy government dependence on them.
The sales tax is on consumption of goods as more use means higher payment of taxes, which hurt low-income groups. Contribution of sales tax among the indirect taxes was just 28 per cent in 1996-97 but jumped to 50 per cent in 1999-2000 when General Musharraf assumed power and geared up sales tax collection campaign with all forces crushing every resistance showed by the traders.
The sales tax kept on moving and reached 59 per cent of the total indirect taxes during the last fiscal year, while the target for the current fiscal has been fixed at 62 per cent.
“It is killing for the general public as it is on consumption. It is comparatively easy to collect as compared to direct taxes,” said Mohammad Sohail, an analyst.
The volume of indirect taxes increased from Rs234 billion to Rs408 billion during 2000-05 while the direct tax increased from Rs113 billion to Rs183 billion in the same period.
It also shows that increase in indirect taxes during the last six years was Rs173 billion which means Rs29 billion per year while the direct taxes growth was Rs11.6 billion per year.
“Since the sales tax is on consumption, it reduces the purchasing power of the general public. It is more painful when the growth of direct taxes is too slow and government heavily depends on indirect taxes or taxes from the poor classes,” said Saeed Abbas, an economist.
The sales tax is particularly inflationary in its nature but the higher inflation pays more to the government. Higher prices of goods would yield higher sales tax to the government. It prevents the government from taking any serious move against price hikes. He said that oil prices had risen by over 80 per cent in a year in the country which earned billions of rupees to the government in form of higher sales tax.
Last year the government collected Rs240 billion as sales tax and the overall indirect taxes reached Rs408 billion. The high growth in the indirect taxes was due to higher GDP growth of 8.4 per cent. Economists say that higher growth means higher consumption of goods and other materials.
“After the earthquake shock it looks difficult to reach the GDP growth target of 7 per cent, which will certainly hurt the government’s indirect earnings,” said Abbas.
