Tax Potential and its Compliances in Pakistan
Pakistan has a potential of a big economy. About 38% of Pakistanis live in cities, yet they contribute about 55% of GDP. This means that if Pakistan manages to collect taxes effectively in these cities, there is more potential for revenue. At present, local city governments in Pakistan not financially empowered; instead, most city taxes are levied through one of Pakistan’s four provincial governments. These provincial governments have large jurisdictions with a population of 12 million to more than 110 million. Since the management of cities is not the main task of these governments, most of them have not been able to develop effective methods tax collections on province based.
Policies and administrative issues of Governments
The policy symposium identified major weaknesses and possible remedies for Pakistan’s tax system. Three major problems with the tax system in Pakistan identified, including exemptions, incentives and preferential treatment. Tax administration and tight tax base. A policy brief on tax reform in Pakistan, which includes the design of an exemption phase by the government, the reconstruction of the FBR, and a change in public perceptions of Pakistan’s tax authorities by change on administrative side.
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Tax Collection issues in Pakistan
Pakistan’s narrow tax ideology, its limited ability to collect taxes, and its low national rate of tax compliance point to a call for better tax administration. This issue has increased by the large number of tax breaks for certain sections of society. For example, taxes on agriculture, capital gains, and real estate are essentially non-existent, shifting the burden of tax evasion to lower-income groups through withholding taxes and sales taxes.
Tax evasion & corruption in Pakistan
It should not be concluded that Pakistanis do not avoid taxes. The main reason people refuse to pay taxes is the lack of trust in the administration. People do not see their efforts in return. The system lacks transparency and accountability, which raises the question of whether their money really used for their own benefit or for the benefit of others.
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According to the current statistics only 1.2 percent of the total population – pay taxes. The rate is the lowest in the world. The country losing more than Rs 1,000 billion worth of taxes every year, which is about 70 per cent of the potential revenue collected. In addition, the SBP’s annual report shows that 57.5 million people employed and undoubtedly earn some income, which is why tax evasion occurs. According to the Federal Bureau of Revenue (FBR), tax evasion of Rs 170 billion was recorded across the country in 2018.
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Linkage of National Tax Number (NTN) with National Database (Nadra)
The government has taken steps to do this – the national database, NADRA, needs to be linked with the National Tax Number (NTN). In this regard, it is difficult for people to avoid taxes and it is an easy way to pay taxes, so the number of taxpayers increases. This process simplifies the process of filing tax returns.
Digitization of tax collection in Pakistan
The State Bank of Pakistan and the Federal Board of Revenue have jointly introduced online tax collection system. The purpose of such a scheme is to improve the payment system. Especially in the context of tax collection, to facilitate taxpayers and minimize the incidence of leakages. There is a need to digitize the tax system also. Government has recently taken steps like online issues of tax notices, tax replies. Submission of online tax appeals is a great step. Corruption can reduce by minimum interaction of taxpayers with tax officials. More steps need to do to educate both the taxpayer as well as tax officials. To take maximum benefit from the online tax system.
ALSO READ:Karachi Tax Bar identified errors in Tax Year 2020 return
Iris tax portal technical issues
Currently, tax portal of FBR facing technical issues due to large number of traffic during tax compliance from taxpayer side. Iris portal needs to be technically strong to avoid blockages. Karachi Tax Bar Associations has often raised the issues to the FBR for erroneous calculations in the tax return form for tax year 2020. Form availability delays is also a big issue for timely compliance of annual income tax returns.
ALSO READ:Tax year 2020 draft return forms issued by FBR
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