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June 11, 2021

Collecting taxes

 
June 11, 2021

The government has promised a significant improvement in the economy in the upcoming years, with economic growth for the coming year put at 3.94 percent. Further, the government has also been happy with its tax collection efforts, with reports of Rs4000 billion collected in tax. While these figures may in themselves be accurate, the government appears to be comparing its performance in its own first two years with its third year. There has indeed been a successive increase in tax collection over 10 years, during the tenure of the PPP and then of the PML-N. What is more important is the issue of how taxes are collected and from whom. Indirect taxes, the mainstay of Pakistan's tax system, have been imposed for years and essentially are passed on to ordinary citizens, many of whom are already unable to make ends meet. Taxes on sugar, on tea, on petrol, and on other commodities of a similar kind essentially pass on to poor people who contribute to the number of taxes collected, but obviously suffer as a result.

The real challenge is to broaden the tax net by collecting taxes from those who currently do not give any or hardly any at all. These include retailers, wholesalers, industrial consumers of electricity who are not registered as persons who pay tax and also those involved in the vast agricultural sector of the country. There is little point in collecting taxes on imports, and benefiting from the fall of the rupee when this is done, given that the higher dollar rate means a higher rate of tax collection. The government's economic team should be considering the fact that the fall in the rupee may mean more taxes on imports, but an overall loss to the economy and in the stability of the country's ability to collect resources.

In other words, we need to alter our entire strategy for collecting taxes. Relying on indirect taxation, including sales tax and withholding tax simply burdens those who can already barely afford life. This will in no way benefit either the country or the people who live in it. It will also not benefit the PTI, in the sense of its vote base. The government would be well-advised to impose taxes on those that remain untaxed so that tax collection can increase but by making sure that the right people are paying and not just the poor and the middle class.