The provinces should proceed without additional regulation, as further taxation by local councils will not be beneficial. Increasing the tax burden without providing relief to citizens will lead to procedural complications. Additionally, there are pending appeals regarding double taxation on utilities. Tax and revenue collection have dominated economic policy for the last three or four decades.
A quick and transparent tax system is essential. The goal is not to tax all products and services equally, allowing customer and investment choices to rely on market realities. Taxation levels and strategies must remain constant and not change frequently. Furthermore, the government must avoid spreading misinformation about its citizens, implying they refuse to pay taxes.
With a significant minority earning below the taxable income limit, the government’s reliance on indirect taxes to increase the tax-to-GDP ratio diminishes benefits and hampers economic growth. This reliance creates inefficiencies and inequalities, widening the social and economic gap. Policy planners should consider a tax income plan to minimize the adverse effects of the current poor tax system on income inequality.
Inclusive growth and wealth redistribution should be integral to tax policies. Pakistan’s economy has seen low investment since 2007, and the power of taxes to adjust income distribution has been limited for the poorest income quintiles. One potential solution could involve reforming the corporate tax system, as suggested by the Federal Board of Revenue. The government imposes taxes to finance public spending, such as paying wages and building infrastructure, but Pakistan’s tax-to-GDP ratio is low compared to other developing nations.
Pakistan’s taxation system is complicated, with over 70 uniform taxes regulated by at least 37 government agencies. The issue is not unique to Pakistan but may stem from poor resource management. It is incorrect to say Pakistanis are tax avoiders; the primary reason for tax evasion is the lack of government transparency and accountability. Citizens feel their efforts are not rewarded, and there are concerns about whether tax money is used effectively.
The Legislative Challenge
After 22 years of acceptance and stable application through court trials, the Revenue Tax Decree of 1979 was revoked. Unfortunately, three elected parliaments since then have failed to clarify the legislative basis for income tax law. Since Pakistan’s creation, no Income Tax Act has been duly debated and passed in the Assembly. Both previous Ordinances were issued during Martial Law, and the Constitution limits an Ordinance’s life to four months unless it is enacted as an Act. This legislative gap has led to numerous changes being implemented without proper parliamentary oversight.
Current Taxation Status in Pakistan
Pakistan’s reliance on indirect taxes (6.3% of GDP) on goods and services, with only 4.2% of GDP from direct taxes primarily raised by corporations, hinders the ability to finance public expenditure effectively. Improved compliance could lead to more profitable businesses. Achieving this requires better-trained workers with access to appropriate technologies and services. Many emerging economies focus on informal cash transactions, which are not captured in the tax base. Pakistan should build better tax knowledge and compliance, as evidence suggests VAT can help collect more revenue by creating a paper trail between businesses. However, administrative and cooperation challenges exist due to the division between federal and provincial governments, and broad VAT exemptions distort the tax system.
Conclusion
The Islamic period provided a more organized and precise taxation system, which is part of a complete code of life in Islam. Islamic taxation ensures wealth distribution and prohibits the hoarding of money. Certain classes of people are exempt from paying taxes. The only form of taxation considered illicit (haram) in Islam is one that supports the luxurious lifestyles of leaders and rulers, burdening the already poor and oppressed. Taxation should benefit society at large, but public awareness of its importance is low, leading to widespread tax evasion. Major taxes in Pakistan include property tax and indirect taxes on almost all goods and services.
My name is Razia Rafique Bajwa, and I am an M. Phil scholar at Chaudhry Abdul Rehman Business School, part of Superior University. Currently, I work as a Business Relationship Executive. In this role, I focus on building and maintaining strong relationships within the business community.
Please note that all opinions, views, statements, and facts conveyed in the article are solely those of the author and do not necessarily represent the official policy or position of Chaudhry Abdul Rehman Business School (CARBS). CARBS assumes no liability or responsibility for any errors or omissions in the content. When interpreting and applying the information provided in the article, readers are advised to use their own discretion and judgement.
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