Tax Reforms in Pakistan

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Naseebullah khan

Pakistan continues to face severe ecnomic meltdown. Currently, the tax collection cannot meet the requirements of debt servicing and other needs. There is a dire need of a complete revamp of tax system. Increasing ratio of tax to GDP, eradication of corruption, ending elite privileges, and increasing tax ratio on big businesses are a must. It is better late then never.     Historically, tax to the GDP ratio fluctuates in the country. In 1996_97 tax to GDP was 12.64 percent which was reduced to 9.97 percent in 2005_06. Again in 2011, it was around 11 percent which was later on diminished to 9.1 percent in the fiscal year of 2013_14, during the year of 2013_14 it increased to 11.4 percent, in the fiscal year of 2021_22 (9 months of the PTI government and 3 months of the PDM government) the ratio was 9.1. While, the current finance minister Miftah Ismail has predicted that the ratio will be 8.6 percent this year with total filers of 2.2 million in October 2021. According to the IMF,  the Tax net must be broaden to 15% of the GDP from 9 percent of now. There is a dire need to bring, big Traders, real estate, agriculture, cement and sugar tycoons be brought in tax net proportionately.  A huge obstacle plus menace in the revenue generation in Pakistan is the provision of elite priviliges and tax exceptions. According to the UNDP report of 2021, the elite privileges in Pakistan are 17.4 billion USD that include elite privileges of corporate sector, Banking sector Rs 196 billion, industrial sector Rs 528 billion, feudal landlords Rs 370 billion, high net worth individuals Rs 368 billion, large traders Rs 348 billion,  state owned enterprises Rs 345 billion, military establishment Rs 257 billion, and exporters 248 billion. That added up to an estimated 17.4 billion USD or roughly 6 percent of the country’s economy that make total elite benefirs and privileges 2660 billion rupees. The report further says that, the richest 1 percent of the country hold 9 percent of the country’s income of 314.46 billion USD in 2018_19. Whule the poorest 1 percent hold just 0.15 percent. Overall, the richest percent of Pakistani,s hold 49.6 of the national income. So why the poor be targeted or the salaried class be targeted.

Why not these big wigs?

We have enormous exapmles from history where countries adopted strict measures on big businesses and enhanced their tax net. On 2000,s in Bosinia, when tax holidays were ended the tax was increased bit lowered corporate income tax rates. Tax revenue was increased. In Rawanda, the government registered many businesses and companies but didnot compromise and did not reduce tax exemptions and exonerations.

What to do?

There is a diee need of reduction in tax incentives. These tax breaks includes tax holidays. It mean if you invests in a certain area you will have tax exemption and reduction of tax. Why should it be? Moreover, there is a dire beed of making struggle and identify non register companies, individuals. End corruption. Here must be a propser check on onlibe billing in hotels where the administration give fake receipts of tax cutting rather than online receipt. It is online but of no value. In addition, bringing Hospitals, transport companies, and other big busisnesses into tax net properly demand urgent actions as majority of them avoid documentation. Agriculture sector’s taxing needs a revamping. Most of the agro land is either _benami_ or in the names of peasants who don’t have real ownership and are out of the tax net. The problem lies in the root of the fact that numerous landlords owning these lands in Punjab and Sindh are lawmakers who will never shy to secure and protect their lands.    Notwithstanding, real estate sector has boomed in recent times after governments gave owners of untaxed money a safe passage through the introduction of amnesty scheme to invest their wealths in the sector. A close eye on them on the part of the FBR is a must.

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