But, much effort is not being made to make the tax machinery less oppressive and to broaden the narrow tax base. And the existing system needs improvement.
The revenue generated through the universal self-assessment scheme (USAS) witnessed a huge decline this year and needs some corrective measures. The government particularly needs to look into this issue.
For the last seven years, revenue growth has been restricted by a narrow tax-base, but no practical efforts have, so far, been made excluding a fruitless tax survey. While the number of registered taxpayers has increased over the past few years, a sizeable segment is evading taxes.
As to what can be raised from these selected commodities , companies or individuals has already been achieved. Tax revenue from the existing sources is reaching a saturation point. Potential taxpayers have to be brought in the tax net.
The draft proposals of the Federal Board of Revenue (FBR) tax lightly the rich and the influential classes that have monopoly over economic resources. The poor are paying an exorbitant general sales tax at the rate of 15 per cent, which, in fact, is 42 per cent on finished goods after mandatory value addition and income tax at source on essential commodities.
The poor, particularly the low-salaried classes, are going to face the brunt of the new indirect taxation and resultantly, a high rate of inflation. While the big industrialists, landed classes, generals, politicians, ministers and bureaucrats are paying no wealth tax and very little income tax on their colossal assets/incomes.
Tax officials have briefed the Finance Minister Naveed Qamar recently on the proposed taxation measures for the upcoming budget. The proposed targets for the indirect taxes is Rs733 billion and Rs480 billion for income tax. This means the share of indirect taxes would be 60.4 per cent and 39.5 per cent for direct taxes. Much of the direct taxes are presumptive taxes which are normally passed on to the consumers.
Pakistan’s indirect tax system is biased against the lower income households. Official data shows that without tackling any new taxation measures, the GST collection would be Rs440 billion for the next fiscal if economy continues to show growth and inflation remains within double digit. However, it has been anticipated that the measures including administrative steps would generate more than Rs30 billion. After these measures, the sales tax target will be enhanced to Rs470 billion.
The share of the GST in total revenue collection for 2008-09 would stand at 38.7 per cent and 64 per cent within indirect taxes, meaning heavy reliance on this consumption-based tax. This tax can also be easily collected without any efforts of the tax officials.
From the new proposed measures of customs duty, tax officials are expecting to raise Rs7.5 billion to set an annual proposed target of Rs167 billion. The federal excise duty (FED) target will be raised to Rs97 billion.
On the other hand, tax officials hope to get Rs20 billion income tax by adjusting income tax rates and some other measures. A key proposal is to impose the capital gains tax on share transactions. It seems to be a tough task as brokers are opposing the move tooth and nail.
Many are making profit of billions of rupees on daily basis in speculative transactions in real estates, shares, and currency and ‘Benami’ transactions. They are either not taxed or are under-taxed.
Had the successive governments concentrated on manufacturing, there would have been substantial rise in taxes today. Over-taxing the same sectors leads to economic slow down , unemployment and social unrest.
There is a need to make drastic changes in the fiscal reform programme to curb tax evasion in a bid to distribute the burden of taxes fairly and equitably.
The tax revenue cannot be increased significantly when there is no change in the tax structure and its base and while the incomes generated from a high economic growth are not fully taxed.
The major challenges would be the narrow tax base, loopholes in the tax system and suspension of an effective audit. These issues need to be properly addressed by the policy makers.