Daily Times

KARACHI: Finance and taxation managers at the helm of affairs in the government have always been focusing on indirect taxes instead of creating a genuine base for direct taxation.

Due to this constant policy, the ratio of direct taxes collected in Pakistan has always remained very low at 11.21 percent. On the contrary, indirect taxation generates more than 88.8 percent of the country’s revenues.

The indirect taxes system makes dull the purchasing power of lower income groups, a major portion of country’s population. On the other hand, the wealth of the upper class remains largely undocumented and untaxed.

The best ratio of direct taxation in the region has been achieved by Bangladesh, where the government revenues consist of 46.33 percent of direct taxes and 53.66 percent of indirect taxes.

It is also been noted that the huge economy of India has achieved a healthy level of 33.45 percent direct taxation, with 66.55 percent indirect taxation.

Haider Patel and Asif Haroon of the Institute of Chartered Accountants of Pakistan and experts on direct and indirect taxation matters were of the view that it was the need of the hour that the government managers in the budgetary and taxation policy making arena in the country should improve taxation performance and raise the ratio of direct taxation in the economy.

The financial and fiscal experts suggested that for the next fiscal budget, the government should consider establishing a single authority for tax collection, with only one tax return form to cover all taxes as well as the federal excise duty.

They said that there should be a single, independent audit authority, while policy division should be outside the Federal Board of Revenue.

Due to the unorganised and largely undocumented sectors of the country – services, wholesale/retail, transports and agriculture – their contribution to the tax net remained very low, they opined.

They suggested that it would be beneficial for the national economy that an extra tax of 15 percent was levied – for non-filers – through electricity bills of industrial and commercial enterprises.

They said that it would be an added factor, which could help force new entrants – both industrial and commercial electricity connection-holders – to file their income tax returns. They added that the step would also help the government collect more taxes. Large Taxpayers Unit Chief Commissioner Ayaz Mahmood was of the view that there should be an improvement in the tax collection level.