LAHORE: To address the issue of a narrow tax base, the government should implement several solutions, including digitalization, removing exemptions, offering Incentives, and strengthening enforcement.
According to leading taxonomist Ashfaq Tola, implementing a modern e-tax system can make it easier for taxpayers to register and file taxes, reducing compliance costs and increasing efficiency. He said removing unwarranted exemptions and bringing untaxed sectors, such as agriculture and real estate, under the tax net can significantly broaden the tax base.
Tola pointed out that offering incentives, such as tax holidays or modest tax rates, can encourage small businesses and farmers to formalize and pay taxes. He said better auditing and follow-up on non-filers can help identify and bring into tax net those who are currently evading taxes.
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Tola said a broader tax base can have numerous benefits for Pakistan, including increased revenue, as it can provide the government with more revenue to fund public services and infrastructure.
A more progressive tax system can help reduce income inequality and promote economic growth, he added. He said a broader tax base can lead to a more stable economy, reducing the risk of economic shocks and crises.
According to him, broadening Pakistan’s direct tax base is crucial for promoting economic stability, reducing inequality, and increasing revenue. By implementing digital solutions, removing exemptions, offering incentives, and strengthening enforcement, the government can create a more equitable and sustainable tax system.
Pakistan’s tax system is facing a significant challenge due to its narrow direct tax base. The country collects only about 12-13% of GDP in tax revenue, one of the lowest in the world. A narrow tax base forces the government to rely heavily on indirect taxes, which disproportionately affect low-income households.
A narrow tax base means that only a small fraction of the population pays direct taxes, such as income tax. This results in a significant burden on a few individuals and businesses, leading to tax evasion and avoidance. The government is then forced to borrow more, which is inefficient and unsustainable.
Copyright Business Recorder, 2025
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