October 12, 2006	Thursday	Ramazan 18, 1427

ISLAMABAD, Oct 11: Unlike other developing countries, the share of income tax in total federal taxes in Pakistan hovered around 30 per cent during the last few years, suggesting massive measures for generating additional revenues from this source.

In emerging economies like Turkey, Mexico, Brazil and Korea, the contribution of direct taxes is gradually increasing and has reached around 45 per cent. The advanced countries like, the US, Belgium, Sweden, Japan, Austria, Germany, the Netherlands, France, Norway and Switzerland are the examples where the share of direct taxes is more than 60 per cent of total tax revenues.

The Central Board of Revenue’s last quarterly report (April-June) of the fiscal year 2006 released here on Wednesday said that despite the fact that the share of income tax in total taxes stood around 30 per cent but even though it has increased from 18 per cent in the early 1990s. It appears that within an international perspective, there is a scope for generating additional revenues from this source.

The report observes that indirect taxes are believed to be regressive in nature as their burden is shifted forward on to the final consumers. On the other hand, the direct taxes, being ‘generally’ progressive, help in maintaining the overall proportionality of the taxation system. Direct taxes also play a key role in ensuring a sustainable level of economic growth and development.

It was pointed out that one of the constraining factors is the rather low contribution of the corporate sector. This is evident from the fact that despite the existence of a reasonable number of corporations registered with the government -- CBR and SECP -- the return filers are low and within those who file returns, only a small fraction declares taxable incomes.

On the other hand, a large majority of the corporations continue to claim business losses or showing nil incomes. Besides absence of corporate tax culture, there is also a concern about the role of withholding agents. One of the findings of a recently concluded study is that the revenue from withholding tax in comparison to its base appears to be quite low.

The report said that the importance of GST as a tax on consumption activities had increased manifold. Its share has gone up to about 41 per cent in total federal taxes in recent years.

In most of the East Asian and other developing economies, the contribution of income and corporate taxes is between six per cent and seven per cent of GDP, whereas it is close to three per cent in Pakistan. Clearly, there is scope to raise this level to the international standards.

Anticipating that the economy will maintain the high growth trajectory, the budgetary target for Fiscal Year 2006-07 has been set at Rs835 billion, showing an increase of 17.2 per cent over the provisional collection of Rs712.5 billion of last year.

Given that the outturn of individual taxes and growth trajectories are materialised, the CBR projections anticipate that the share of direct taxes in total CBR collection will be 31.7 per cent -- higher than last year, and within indirect taxes, the shares of sales tax, excise, and CD will be 60.3 per cent, 12.1 per cent and 27.6 per cent, respectively.