- Tuesday | 03 Dec, 2013
- Vaqar Ahmed, Muhammad Adnan
- Research Reports,Project Publications
1. Taxes matter. Taxes affect citizens, economy of the country, businesses, governance mechanisms, etc. Not only revenue mobilisation, an effective system of taxation helps in formalising the economy, encourages economic growth, shapes political cohesion between tiers of the Government, and results in increase in social sector service delivery.
2. A good tax system should be fair, adequate, simple, transparent, and administratively easy to adopt and comply. Fairness means that the tax should be equitable – i.e. it should apply to everyone and must not distinguish between different taxpayers. It is important that taxpayers believe that they are treated equally. Ideally, taxpayers in similar financial condition should pay similar amounts in taxes. Taxpayers who are better off should pay at least the same proportion of income in taxes as those who are less well off. The government should not become a burden on low-income residents. Tax system should be adequate – i.e. taxes must provide enough revenue to meet the basic needs of society. Tax system should be transparent, which means that taxpayers and leaders can easily find information about the tax system and how tax money is used. Information should be available (in broad terms) on who pays the tax and who benefits from tax exemptions, deductions, and credits. Administrative ease means that the tax system is not too complicated or costly for either taxpayers or tax collectors. Rules are well known and fairly simple, forms are not too complicated, it is easy to comply voluntarily.
3. Pakistan needs considerable efforts to improve its system of taxation. Based on the above characteristics of a good taxation system, there is a considerable room for improvement in terms of both the tax-policy and tax-administration. The tax base is currently narrow, there is limited capacity of the state to extract taxes, informal economy has grown, compliance ratios are reducing, and there is a need to improve tax administration.
4. Pakistan’s tax system cannot be termed as fair as there are wide exemptions and preferential treatments available to certain segments of the society, while negligible amounts are collected through taxes on agriculture, capital gains, and immovable property. The general perception is that the Government is a burden on low-income residents. L</