Though all but 100 plus parliamentarians filed taxes for FY13, poor governance and the inability to make the cabinet or the parliament foist taxes on the rich in the country still remains an unsolved and a largely unaddressed conundrum. No wonder the country ranks 166 out of 189 countries in paying taxes.
According to the latest Paying Taxes 2014 report - an annual joint collaboration of the World Bank, IFC and PwC - Pakistan is amongst those where paying taxes is the hardest. The total tax rate stands at 34.7 percent in Pakistan compared to 36.4 percent on average in the Asia Pacific region and 46.9 percent on average in South Asia alone. The total tax rate is the cost of all taxes borne by a case study company, which is a small to medium-size manufacturer and retailer, intentionally chosen by the study group to ensure that its business can be compared on a like for like basis worldwide.
Of the total tax rate of 34.7 percent in Pakistan, 18 percent correspond to the profit taxes, generally known as taxes on income and earnings or any business activity and trade. Another 15.1 percent is the labour tax, which is the amount of taxes and mandatory contributions on labour paid by the businesses.
Besides the cost borne on all taxes, the paying taxes indicators also cover the administrative burden of tax compliance for a company, which is deciphered through the time needed to comply with major taxes and the number of tax payments required to be made. On the compliance scale, total tax time in Pakistan is 577 hours compared to only average 232 hours in Asia Pacific.
Similarly, the average number of payments required to comply with tax system in Pakistan is also higher than the regional average. While on average 47 payments are needed in Pakistan, only 25.4 payments are required in Asia Pacific region.
Although the average profit taxes remained the largest component of the total tax rate in Asia Pacific, regional differences mark the variations between various economies. Pakistan was amongst the five countries that witnessed a reduction in their profit tax rates by more than 10 percent in the last nine years. This was primarily because of a decrease in the headline rate of profit tax.
Also, according to the study, Pakistan was amongst the countries that witnessed significant movements in their time to comply with taxes. Sadly, it became more tedious in Pakistan to pay taxes as the number of tax hours increased by 17 in 2012; the introduction of online VAT system required more information to be entered in VAT returns.
Elsewhere in the world, reforms continue; while 32 countries as per the report have emerged as those that have made paying taxes easier between June 2012 and June 2013 by specially focusing on either introducing or improving their electronic system, Pakistan has been classified as being unable to improve the acceptance of its electronic system for filing and paying VAT and corporate income tax.
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