Pakistan has one of the lowest tax-to-GDP ratio, with less than one percent of the population is registered for tax, corruption rampant in tax authorities, and foreign untaxed bank accounts a norm. Successive governments have failed to attract new taxpayers and include foreign accounts in the tax net through an improved taxing system or with amnesty schemes. In Pakistan the average corporate tax a manufacturer pays is around 39 percent, while the average tax an importer pays is 22.5 percent. With corporate tax almost double than import tax our country will never attract companies to set up manufacturing plants. Most of our tax revenue comes from indirect sources that include tax on fuel, electricity, telecom, vehicles, property, banking etc, which is good because it taxes high consumers more. But these types of indirect taxes have limits as these taxes are essentially a tax on everyone, including the poor.
To overcome these challenges the government can take the following measures. First, increase import tax, but not on food, medicines, fuel and selected raw materials, while greatly reducing corporate tax to increase industrialization. A limit or cap should be placed on all exemptions and no one should be allowed to get unlimited exemption through any SRO. To reduce corruption in tax authorities, NAB should be asked to regularly investigate the wealth of officials and their direct families who work in the FBR, Customs and for Inland Revenue. If any tax collecting official report is found to be wrong, they should be investigated and removed. Avenues that are used to hide wealth should be regulated and their actual value added to the wealth of the person whose NIC it is registered with. To improve tax collection, citizens should be allowed an option of paying tax in 12-month installments. As paying Rs2500 per month sounds easier than paying Rs30,000 in one month. It is also suggested that a limit cap should be placed on indirect taxes as these taxes increase inflation rapidly.
Engr Shahryar Khan Baseer
Peshawar
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