It is not only the question of “Taxing the untaxable”. Charities & charitable institutions all over the world are Tax exempt. Dargahs & Khanqahs may be many but their total income is probably only a fraction of 1% of the GDP. Besides they do some good work as well, food to the poor at most such institutions is free.
Let us first look into why does gov’ts need tax and why everyone must pay tax.
Taxation is the name given to process through which city, provinces and the federal gov’t collects funds to enable the gov’t machinery to function. The funds received thru taxation funds gov’t workers’ salaries and help pay for the essential support services such as the defence, police, fire-fighters, maintenance of roads, libraries, parks and public conveniences such as rubbish collection.
In most countries, public transport such as railways & buses, higher education, health and water are self-financed (people pay for the actual or part of the cost for the gas, electricity, telephone & mail). There are also certain needs which are difficult to quantify but nevertheless need to be paid for such land for the space of public walkways, education up to the secondary level and clean environment. In addition to the above, Pakistan also needs funds for development & poverty reduction programs. All such programs have to be financed from the revenue received thru taxation.
In Pakistan, State revenues fall way short of the expenditure. In addition to the narrow tax base; employees of the Income Tax, Excise & Taxation and Customs often collude with the Tax Payers, lining their own pockets in the bargain.
Annual shortfall is nearly 5% of the GDP and despite printing money; after paying for the Defence & repayment of Debt and paying salaries of the administrative staff; very little is left over that can be allocated to Education & Health. The continuing deficit financing also results and depreciation of the rupee worth.
About 1/5th of the GDP comes from the agricultural sector, which is not taxed at all. That is why GOP has become dependent on the indirect taxation, via Excise Duty, Customs/Import duty and the VAT/Sales Tax. It is estimated that more than 60% of GOP revenue is through indirect taxes. This heavy burden encourages smuggling and gives rise to the growth of the informal economy.
I know a few landowners who claim that agriculture sector already pays tax in the form of duties on the fertilizer, water rates etc. My answer being that Income Tax is after deduction all of the above and the salaried class, in addition to paying heavy indirect taxation, also pay tax on their salaries; why should the landowners be exempt?
Many people that I know also say that they evade paying tax because they do not trust the Tax administration and claim that instead of public amenities, taxpayers funds end up lining the pockets of the administrators.
No country, household or even a street hawker would survive if the expenses perpetually exceed the income. So what needs to be done? Reports suggest that the main problem with the tax system is the sustained inability to raise the tax base.
IMHO, first and foremost need is to make Federal Board of Revenue a modern, effective and credible organization with high-quality staff that ensures compliance with the tax laws. Second is the full documenting the undocumented economy.
Some estimate that the undocumented economy could be as much as 35% of the total economy. Arguably, this figure includes illegal activities such as smuggling & narcotics and the services provided by the household servants which is near impossible to document.
Nevertheless, there are significant numbers of economic activities that such as grocery stores, beauty parlours, tyre shops, car repair garages, and under evaluation of the property values and people renting houses or part of the house, that can be and should be brought into the Tax base.
But is the above possible? Honestly speaking, not likely. Primarily because the dishonesty and corruption have seeped into every level of the society to such an extent that to be honest and principled is a major disqualification. Imran Khan had the reputation of being honest and the PTI election campaign was based on non-political interference. But the ground reality, as evident from the transfer of Pakpattan DPO, Punjab IG and the Islamabad IG clearly indicates that nothing has changed.
Let us first look into why does gov’ts need tax and why everyone must pay tax.
Taxation is the name given to process through which city, provinces and the federal gov’t collects funds to enable the gov’t machinery to function. The funds received thru taxation funds gov’t workers’ salaries and help pay for the essential support services such as the defence, police, fire-fighters, maintenance of roads, libraries, parks and public conveniences such as rubbish collection.
In most countries, public transport such as railways & buses, higher education, health and water are self-financed (people pay for the actual or part of the cost for the gas, electricity, telephone & mail). There are also certain needs which are difficult to quantify but nevertheless need to be paid for such land for the space of public walkways, education up to the secondary level and clean environment. In addition to the above, Pakistan also needs funds for development & poverty reduction programs. All such programs have to be financed from the revenue received thru taxation.
In Pakistan, State revenues fall way short of the expenditure. In addition to the narrow tax base; employees of the Income Tax, Excise & Taxation and Customs often collude with the Tax Payers, lining their own pockets in the bargain.
Annual shortfall is nearly 5% of the GDP and despite printing money; after paying for the Defence & repayment of Debt and paying salaries of the administrative staff; very little is left over that can be allocated to Education & Health. The continuing deficit financing also results and depreciation of the rupee worth.
About 1/5th of the GDP comes from the agricultural sector, which is not taxed at all. That is why GOP has become dependent on the indirect taxation, via Excise Duty, Customs/Import duty and the VAT/Sales Tax. It is estimated that more than 60% of GOP revenue is through indirect taxes. This heavy burden encourages smuggling and gives rise to the growth of the informal economy.
I know a few landowners who claim that agriculture sector already pays tax in the form of duties on the fertilizer, water rates etc. My answer being that Income Tax is after deduction all of the above and the salaried class, in addition to paying heavy indirect taxation, also pay tax on their salaries; why should the landowners be exempt?
Many people that I know also say that they evade paying tax because they do not trust the Tax administration and claim that instead of public amenities, taxpayers funds end up lining the pockets of the administrators.
No country, household or even a street hawker would survive if the expenses perpetually exceed the income. So what needs to be done? Reports suggest that the main problem with the tax system is the sustained inability to raise the tax base.
IMHO, first and foremost need is to make Federal Board of Revenue a modern, effective and credible organization with high-quality staff that ensures compliance with the tax laws. Second is the full documenting the undocumented economy.
Some estimate that the undocumented economy could be as much as 35% of the total economy. Arguably, this figure includes illegal activities such as smuggling & narcotics and the services provided by the household servants which is near impossible to document.
Nevertheless, there are significant numbers of economic activities that such as grocery stores, beauty parlours, tyre shops, car repair garages, and under evaluation of the property values and people renting houses or part of the house, that can be and should be brought into the Tax base.
But is the above possible? Honestly speaking, not likely. Primarily because the dishonesty and corruption have seeped into every level of the society to such an extent that to be honest and principled is a major disqualification. Imran Khan had the reputation of being honest and the PTI election campaign was based on non-political interference. But the ground reality, as evident from the transfer of Pakpattan DPO, Punjab IG and the Islamabad IG clearly indicates that nothing has changed.
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