THIS is in response to Mohammad Azam Sheikh’s letter ‘Unjust taxation policy’ (Sept 9). The writer has taken a stance to promote the progressive taxation system which would allow a higher tax volume by charging the elite class higher taxes.

However, the article overlooked other factors which are equally important for an economy to flourish.

There are limitations attached when it comes to progressive system of taxation. First, the business class which contributes immensely towards the GDP may feel demotivated in working in Pakistan and decide to shift business to places with lenient taxation policies.

This would lead to further fiscal deficit for Pakistan and, therefore, increment in debt burden. Lately, the UK decreased its tax rates and in response it received large sums of foreign investments.

So, we can say that progressive tax systems punish people for making more money because the more you make, the more taxes you pay.

Regressive systems encourage people to earn more income because the more you make, the more you get to keep. This incentive will produce more investment, savings, job growth, and national GDP.

Regressive taxes foster desirable economic behaviour. Excise taxes, such as taxes on cigarettes and alcohol are meant to have an impact on behaviour, and these taxes, together with the sales tax, may curb consumption of certain goods and services.

In this fashion, regressive taxes can be used to urge people to avoid dangerous behaviours but encourage savings, which are typically excluded from progressive taxation.

In a nutshell, we can say that rather than criticising the regressive taxation policy of Pakistan, we should focus more on controlling inflation, improving balance of payments and increasing employment as these issues are in a dire need of government attention.

AMNA BAKHT GHAZALI, & FOUR OTHERS Karachi