ISLAMABAD, Sept 28: Only 1.5 per cent of 150 million populations in Pakistan are paying income tax, ranking the country one of the lowest taxpayers in the world in terms of population ratio.
A research report released here on Wednesday revealed that the share of taxpayers to population was only 1.5 per cent in Pakistan, while it ranges between 2.7 per cent and 86.4 per cent in other countries.
Citing an example, the report conducted by the secretary fiscal research, Central Board of Revenue, Umar Wahid, says in India the share of taxpayers to population is 2.7 per cent, in Argentina 14.5 per cent, France 58 per cent and in Canada it is 86.4 per cent.
On the other hand, the corporate sector, which contributes around 66 per cent to the total income tax collection, has a share of only one per cent in the income tax base in Pakistan, as against 99 per cent share in other countries.
At present there are 45,373 companies registered with the Securities Exchange Commission of Pakistan, while the registered number with the CBR is only 23,090 (NTN holders). With such a low compliance rate, the obvious outcome is the unsatisfactory level of the revenue realization.
The analysis showed that the narrowness of the base, low compliance and the non-serious attitude of the taxpayers in filing their returns and fulfilling tax obligations were serious considerations. The problem is compounded by defective database.
Regarding the narrowness of the base, the researcher stresses the need for fresh assessment of all concessions and exemptions which have been granted over the years. For instance, tax on capital gains should be the primary target in this endeavour. This apparent distortion needs to be corrected at the earliest otherwise the tax-to-GDP ratio would continue to remain low and stagnant.
The report observes that there are sectors whose activities are completely outside the income tax net. Still there are other sectors that are lightly taxed. There is a need to have a fresh review of the situation to provide an even-handed treatment to every sector according to its tax paying capacity, the report adds. “It is important that equity and efficiency considerations continue to be the driving forces behind the modernization of the taxation system.”
The researcher says that proper data coding, cleaning, checking and verification would lead to a substantial improvement in the database. In the process, the master index would also become a reliable source of information for comparison purposes.
The report suggests that a strict punitive action should be introduced. The existing legal penalty provisions and their implementation appear to be insufficient to force the delinquent taxpayers to discharge their tax obligations in a forthright manner. Similarly, the possibility of backfiring of a system of self-assessment in the future without adequate safeguards cannot be ruled out, the report concludes.