EDITORIAL: The government is desperate to increase its tax revenues to meet the International Monetary Fund (IMF) conditions for the upcoming programme where the intention is to have a larger programme.

However, for that to materialise the IMF is asking for more resource mobilisation or higher tax-to-GDP revenue generation for the obvious reason of debt sustainability.

Successive governments have failed to expand the direct tax base and to bring those out of the tax net into the system. And, invariably, the modus operandi is to collect direct taxes in an indirect fashion.

In their quest for a signficiant increase in the collection of revenue, successive governments have, without exception, pursued this task by targeting the low-hanging fruit for the obvious reason: ease of collection.

In pursuance of this objective, they created a presumptive tax regime whereby the taxpayer was required to pay a certain percentage of its annual turnover as income tax, irrespective of the fact whether it had a loss or profit and this presumptive tax would be the final discharge of its tax liability and would not need to submit the books of accounts to FBR (Federal Board of Revenue).

Businesses were only too pleased to accept this regime as this allowed them the freedom to charge their personal and domestic expenditure to their business.

Various rates of presumptive tax ranging from 0.5 percent to 8 percent of turnover were levied on different classes of taxpayers.

However, this regime created several difficulties and distortions as the correlation of income with creation of assets and also the expenses incurred was not possible and documentation became a casualty.

Another novel feature that the state resorted to is the concept of minimum tax across the board for all taxpayers.

In other words, even if the taxpayer incurs a loss for the year that is certified by its external auditors and also if, in the assessment proceedings conducted by the FBR officials, the declared loss is assessed to be valid, the taxpayer still has to pay a certain percentage of its turnover as minimum tax.

This method of taxation militates against the very notion of tax on income, subjects the taxpayer to significant hardship and this measure alone is sufficient to dissuade a citizen from joining the pool of taxpayers.

Simply put, is extortion by the state. To add insult to injury, the concept of presumptive taxation was withdrawn (except for exporters and some others) and the presumptive rates of tax were made minimum rates of tax through the finance Act 1999.

The overall tax regime is regressive in nature and heavily tilted against the spirit of documentation and accountability.

The concept of minimum tax alone is enough to cause a scare, and giving a pass to the non-filers by just paying a higher rate on revenues and transactions provides accommodation to the tax evaders and the informal sector to continue operating outside the tax net.

It is an insult to the honest taxpayer. The investment-to-GDP ratio is already the lowest in 50 years while FDI (foreign direct investment) is hard to come by.

The country badly needs exports to rise but a woefully regressive taxation regime, higher interest rates and rising energy costs are big impediments.

The government should rethink its fiscal policy and behaviour of the FBR if it wants the investment in exporting and productive sectors to spur. Whatever the case, every income should be treated equally and there should be uniform income tax for all.

Exporters may have the right to ask for concessions in energy and interest costs to remain regionally competitive, but they should pay due share in tax on their income.

Comments

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Aamir Jul 01, 2024 09:11am
Higher taxes will result in a one time collection till people rearrange assets, stop investments and move money abroad. Wealth always goes where there is low tax.
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Builder Jul 01, 2024 02:04pm
There is indeed no though process in overall taxation. As I've been saying, the IF, WHERE and WHEN clauses in tax code should go away. Everyone should pay taxes on equal basis.
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KU Jul 01, 2024 02:15pm
Private sector salaried class have not seen raise in salary for years, daily wagers face hardship, industry/agri is shut down, yet more tax n skinned alive by stagflation. Lambs for wolves it is.
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Bilal Shaikh Jul 02, 2024 12:25pm
Best part is IMF approving loans to these people for the last 30 years because it suits the colonial powers . Wrong and misplaced taxation has brought pakistan economy to its knees.
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Tariq Qurashi Jul 02, 2024 12:44pm
There should be no holy cows. Why are government officials, a long with their other tax free perks, exempt from paying taxes on the sale of plots or property?
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