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Problems in TAX Collection in Pakistan

This document discusses problems with tax collection in Pakistan. It notes that tax collection is difficult due to lack of knowledge, issues with registration, and the fact that many people live in the informal sector. It also notes that indirect taxes place a higher burden on the poor, while direct taxes only account for 40% of revenue. Recommendations include making the system more progressive by lowering indirect taxes and rates to broaden the tax base and increase collection. The conclusions support lowering rates to boost revenue collection rather than increase rates.

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Amjad Hussain
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95 views20 pages

Problems in TAX Collection in Pakistan

This document discusses problems with tax collection in Pakistan. It notes that tax collection is difficult due to lack of knowledge, issues with registration, and the fact that many people live in the informal sector. It also notes that indirect taxes place a higher burden on the poor, while direct taxes only account for 40% of revenue. Recommendations include making the system more progressive by lowering indirect taxes and rates to broaden the tax base and increase collection. The conclusions support lowering rates to boost revenue collection rather than increase rates.

Uploaded by

Amjad Hussain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problems in

TAX Collection
in Pakistan
Presenting to Mrs.Ambreen Sultan
and to all my fellows.
List of Presenters

Muhammad
Amjad Muhammad
Adeel
Hussain Mubashir
Ahmed
TAXTATION
In Simple Words
• Taxation refers to the practice of a government collecting money from
its citizens to pay for public services. Without taxation, there would be
no public libraries or parks.
BASIC ISSUES
• Lack of knowledge.
• Registration.
• Why to Give tax to government?
• Huge amount of Taxes.
• Lower salary, More taxes.
• People avoid paying taxes.
• The poor class in our society lives in the “informal sector” where tax
collection is difficult.
Solution by Some Advisers
Many consider that increase in rates of taxes will enhance the tax to GDP
ratio.
EFFECT: Directly impacts the economic activity and the consumption
behavior of the people thereby affecting revenue generation.
When imposed, taxes do not discriminate between the rich and poor but
they do enhance the relative income disparities by causing reduction in
the amount of capital in the hands of the consumer.
Whenever there is greater reliance on indirect taxes, the tax burden on
the poor class will be more than the affluent class.
NEED OF RESEARCH
• There has been no worthwhile research on the issue of Pakistan systems
of taxation that can analyze the burden of tax on the common man. Or to
the General public.
• The research is an effort to study the effects of taxation, both direct and
indirect, on the distribution of wealth and the income.
Structure of Taxation in Pakistan.
• The problem of taxation in Pakistan has been difficult, being one of the
main reasons propelling consistent fiscal deficits over the past.
• Lower tax morale, tax evasion and high compliance costs have been few
major challenges that have constrained FBRs capacity to generate
sufficient revenue for the Government.
• Government is unable to spend on social sector development.
Structure of Taxation in Pakistan.
• Pakistan follows a mix of direct and indirect methods of taxation to raise
revenue.
• Indirect taxes are regressive in nature as they usually target
consumption. On the other hand, direct taxes are levied on salaries,
profits, dividends according to their scale as a share of percentage.
• Countries with high tax to GDP ratios adopt a policy of progressive
taxation which caters well to address the income,
Structure of Taxation in Pakistan.
• Contrarily in Pakistan, the incidence of indirect taxation directly impacts
the entire social structure oppressing the poor and the affluent alike
without discrimination.
Diagram

Taxes

40%

60%

Direct Tax Indirect Tax


Federal and Provincial Tax Collection
• According to the Constitution of Pakistan, the power to tax is delineated
between the Federal and the provincial governments.
• Provinces contribute barely 4 -7 % of the total revenues.
• But they receive 35 % from the Government to meet their own
expenditures.
• This burden of the Federation often is the main reason for increasing
reliance on indirect taxes. Provincial taxes include property tax, excise
duties, stamp duties, motor tax etc.
Direct Taxes.
• Direct taxes contribute 40% of total revenue collected by the
government.
• Income tax alone contributes 28% within which only 4% is collected
from personal income taxes.
Indirect Taxes
• Developing countries are often challenged by larger segments of poor
population and only a small percentage of the elite or the affable class.
• It is unfortunate that “indirect tax” has become an indispensable tool in
the hands of the government to enhance revenue.
Research Findings
• Overall, the study has concluded that share of indirect taxes within the
federal and provincial tax codes is quite large and difficult to be
dispensed with at the outset, especially when the government is faced
with a huge debt.
• The benefit provided to the taxpayer in the form of services may be
neutralized or minimized by the accruing DWL in terms of market
inefficiency induced.
Recommendations.
• The taxation system should be made more progressive and internalized
to our socio-economic needs by reducing the percentage of indirect
taxes to reduce burden on poor.
• Lowering of tax rates is yet another form of curbing evasion and easing
out the poor class.
• This will also help in taxing a larger segment of people through low rates
and help achieve better, or at the minimum, the same level of revenue
being collected when the rates were higher through a broadened base.
Recommendations.
• The government should minimize DWL (deadweight loss) arising out of
taxation in every commodity market where the demand is inelastic.
• This will help generate a more efficient economic activity as well as
reduce the burden on the consumer.
• In order to achieve equitable effects in taxation in the rural domain, the
government may consider bringing landlords with large landholdings
into the tax net.
• The agriculture remains a soft sector from taxation point of view, there
is a need to gradually reform this area.
Recommendations.
• The government must expend the revenue in areas of maximum impact
such as public infrastructure, health and education which will help
motivate the people and cultivate a positive atmosphere for an enduring
tax climate in the country.
• The conclusions thus support the notion that decrease in tax rates are
likely to increase the revenue collection rather than the contrary, as
widely believed. We can presume that lowering the tax rates has a
positive relationship with economic behavior of subjects within the
state. Also, greater reliance on indirect taxation will disrupt the vertical
equity of the tax system.
THANK YOU
ALL

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