Institute of Charted Accountants of Pakistan (ICAP) has proposed to the government to broaden its direct tax base because indirect taxes hurt the purchasing power of lower income groups which forms the majority of country's population. In its pre budget recommendations, ICAP urged the government to desist from focussing indirect taxes.
"It was observed that the ratio of direct taxes collected in Pakistan is very low at 11.21%, while indirect-taxation generates 88.79% of the country's revenues," said Haider A Patel, a member of ICAP Taxation Committee. He said indirect taxes hurt the purchasing power of lower income groups while the wealth of Pakistan's rich class remains largely undocumented and un-taxed.
"The best ratio of direct-taxation in the region has been achieved by Bangladesh, where the government revenues comprise of 46.33% direct taxes and 53.66% indirect taxes," he said.
Patel said that even the massive economy of India had achieved a healthy level of 33.45% direct taxation, with 66.55% indirect taxation. "So, Pakistan needs to improve its performance and raise the ratio of direct taxation in the economy," he stressed. He also recommended establishing one single authority for tax-collection, with only one tax-return form to cover all taxes and FED. There should be one single independent audit authority, while the policy division should be outside the FBR.
He said that the unorganised sector such as services, wholesale/retail, transport and agriculture businesses are largely un-documented and their contribution to tax net is very low. So, he proposed an extra 15% tax for non-filers, through the electricity bills of industrial and commercial enterprises. "All these industrial and commercial electricity connection-holders should be forced to file income tax returns," he emphasised.
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