Daily Times

The tax structure of Pakistan is skewed towards indirect taxes but despite this undesirable fact, the potential of tax collection in that area has not been properly tapped by the tax department due to insignificant use of information technology and resultantly major area of economy, manufacturer and retail sectors remain undocumented and untaxed.

The success of modern tax administrations is increasingly becoming well dependent on access to actual data flows (both on manufacturing and sales points) and the real-time tax compliance as well for all purposes including real tax collection.

Throughout the world, digital technology is significantly impacting and has provided maximum facilitation to economies, taxation, businesses, society and creating new products, services and business models. There is now no doubt that digital transformation in economy and taxation can improve tax compliance, reduce administrative burdens on taxpayers and provide big help and support to tax growth. However, Pakistan is lagging behind in the implementation of digitization tax system and has failed to collect the potential of tax due.

Digitization of tax records at all levels throughout is also one of the most important economic and tax indicators, characterizing consumer confidence as well as to evaluate the health, prospective and expansion of the economy. Advances and initiatives in the digital economy by any country would open new opportunities for enforcement of closer controls over manufacturing & retail transactions and that can contribute to reduce tax risks traditionally which has been associated with the vulnerability of tax compliance and tax collection.

Throughout the world, digital technology is significantly impacting and has provided maximum facilitation to economies, taxation, businesses, society and creating new products, services and business models.

For achieving the set targets of legal compliances and tax collection to maximum GDP, many countries have introduced such legal frameworks and introduced digitization mechanism requiring manufacturing and retail businesses to use some form of secure electronic cash register (ECR), including online cash registers (OCRs), to generate and preserve manufacturing and sales data for tax compliance purposes and they have succeeded. Though, digitization in taxation and (OCRs), payment system was early introduced in Pakistan but it could not succeed due to lack of will and implementation strategy in relevant tax laws i.e. Income tax, Sales tax, Federal excise, Customs resultantly not providing such results which are actually required for documented economy and still Pakistan has one of the lowest tax collection ratios compared to its GDP.

Creating a robust regulatory environment based on modern technology would be a vital step for the implementation process and best results for documented economy and tax compliances. The regulatory framework in most cases includes an overarching relevant tax laws with additional regulation making powers based on technology and to control unbridled discretion by this mechanism. The first part would be to develop a solid tax digitization understanding and strategy of the current environment of the country with a way forward implementation strategy with a timeline.

A top level Committee should be constituted at the federal level to make way-forward recommendations for fully information technology/digitization based economy and for taxation System and to properly identify and implement as well both on manufacturing and of Point of Sale (PoS) stage with the mandate to identify the progress regularly for public on net and to address the issues and hindering in documented economy and tax compliances. Both federal and provincial governments should work together, share their experiences and to share their tax information by using modern technology on case to case base for tax compliances.

It is also important to have close consultation with taxpayers to introduce technology on the timing and planning and to prepare and handle the changes in business processes, e.g. registration, monitoring, controlling and evaluating. It is also essential for proper tax compliance and for tax collection to introduce a bar code through digitization process on every manufactured product in the country with live data; this action would ensure a documented economy and would increase tax collection in many folds as per potential of the country. It would also be important to have awareness campaigns and to have close communication by tax authorities for a documented economy with all interested bodies: experts, government and non-governmental bodies, sectoral associations, cash registers vendors and the business community.

Legal framework for implementation of law for digitization of economy and taxation with a timeline must be designed and to be strengthened as well under a well designed digitization system through getting the professional services, who have tax, technology and law/adjudication experiences and also having the understanding the digital economy, tax policies with knowing implementation mechanism. This mechanism would strengthen this new system and digitize the economy and taxation for its effective implementation. It is utmost important, that until law relating to digitization of taxation and economy would not be implemented in letter and spirit, no initiative of any government for broadening the tax base can succeed and yield tax results and for fair and transparent tax environment and compliance in Pakistan.

Special measures through amendments should be made as integral parts for digital economy and taxation in Income tax, Sales tax, Federal excise and Customs laws. It is also important for implementation of suitable amendments for establishing Federal, Provincial and District Oversight Committees consisting of dynamic and experienced personalities under the parent Committee for implementation of the latest provisions of tax laws relating to digitization of the economy and tax system for its effective implementation. These committees should be given tasks to visit for identification of the qualified manufacturers, retailers in relevant tax laws, and in areas of registration, monitoring, controlling, awareness and for evaluating with the objectives to address the issues concerns to stakeholders. These oversight committees must be given targets and they should closely work with the tax authorities, manufacturers and retailers in their respective areas.

The strategy for incentives for balloting of prizes monthly for purchasers and even for manufacturers who fully comply with tax laws must be initiated at the earliest by the tax authorities with full media coverage. At the same time, a coherence strategy with time limit be designed for those manufacturers and retailers who failed to use technology and were involved in non compliance of tax laws.

Proper implementation of digitization of economy and taxation with a good and effective implementation strategy is a need of the time and would be right steps towards a documented economy, taxation, controlling unbridled discretion of government & tax officials, minimizing the loopholes in tax system and finally would increase in revenue collection and tax targets in Pakistan through reasonably enhance good tax base to GDP. These above steps resultantly would minimize the burden and guided policies of international lenders institutions on our citizens and country and would provide as well good space for the government to spend money for the welfare of citizens and for economic social development in Pakistan.

The writer is a practicing lawyer at Supreme Court and has served as Chairman, Federal Excise & Sales Tax Appellate Tribunal and Senior Advisor Federal Ombudsman. He can be reached at: hafizahsaan47@gmail.com.