In his article, Muhammad Arshad
the author has criticized a paper titled, ‘UNLOCKING Pakistan’s Revenue
Potential’ published in august by International Monetary Fund.
The paper concludes that the
country has the potential to nearly double its tax-to GDP ration over the long
term.
The author was touched by the following points raised in the paper.
The paper says, the income tax rates in case of individuals
is 20 percent. And this low level of direct taxes is mostly a result of weak
compliance and enforcement and abundant concessions and exemptions.
Secondly, reducing the tax exempt
income threshold, widening tax brackets, adopting more progressive and lower
tax rates and rationalizing concessions and exemptions would not only increase
revenue yield but also improve the fairness of the tax systems.
His arguments are as follows:
1. The
reference of 20% is not true as para (1) and (1A) of Division 1 of Part 1 of
the first Schedule to the income tax ordinance, 2001 clearly specifies the
marginal rate of tax in case of a salaried person is 30 % and in case of non
salaried person is 35%.
2. Under
normal tax regime the maximum income on which tax is not payable is
Rs.400,000/- but if the country’s socio-economic conditions are taken into
consideration the situation tells a different story. Where the average household size is 5-6
persons, and in most cases there is only one bread earner. So Rs 400,000/- per annum means around Rs.220
per person per day which is hardly sufficient to make both ends meet.
3. Almost
the entire amount is spent on consumable items which are also subject to at 17%
sales tax.
4. Individuals
pay with holding taxes in a number of ways, which is otherwise not due for
them. They deserve relief not more tax.
5. There
are more than 45 withholding taxes which are paid by millions of common
citizens. Most of these WHT have no nexus with the income earned or capacity to
earn. For example WHT charged on profit etc.
6. Even
widows and orphans pay taxes on all of their income.
7. 124
millions mobile phone users pay income tax at source. A country where 50%
people live on or below poverty line this number is not small.
8. Every
commercial electricity user pays income tax at source.
9. Business
are made withholding tax agents and the tax department is mainly involved in
the monitoring of collection of tax at source, levying penalties and default surcharges making the
cost of doing business very high.
10. Withholding
tax becomes an indirect tax when it is treated as a final tax and is passed on
to the ultimate consumer as an indirect tax.
11. There
are number of minimum taxes which are levied without any reference to income.
Taxpayers are forced to pay minimum tax even in case when they are suffering
gross loss and they pay it out of capital. It is not justified.
12. Sales
tax and petroleum development levy prevent passing the benefit of falling oil
prices to the Pakistani businessmen.
Pakistan has
the potential to increase tax revenue. But sensible taxation is the
requirement. The sole objective should
not be the collection of tax, it should be collection of tax based upon the
principle ‘ from each according to his capacity to pay’.
