Heavy indirect taxation regime in Pakistan has not only crippled the common man but also enhanced poverty in the country, economists and industrialists told Business Recorder on Sunday.
Former President Karachi Chamber of Commerce and Industry and Member National Assembly Qaisar Ahmad Sheikh said that the successive government's major internal source of revenue collection has been indirect taxation through General Sales Tax and now the Value Added Tax (VAT). Even on food items and utility bills which is paid by wage earners, working classes and other low income groups who bear brunt of these taxes. He said that the government must make serious efforts to increase tax collection. Since no state can operate without a proper and fair tax collection mechanism.
"Percentage of direct tax collection is very low in Pakistan as compared to other countries of the region whereas the revenue should collect more taxes from such high profit earning industries as cement, sugar, textile and big landlords". "Increase in revenue collection is necessary to overcome macroeconomic weaknesses, poverty alleviation and sustain development ", he added.
Sheikh who is a prominent industrialist and rice exporter said that agriculture contributes about one-fifth of GDP, but amounts to no more than one per cent of FBR revenue, whereas industry carries the brunt of the tax burden, and its tax share is three-times as high as its GDP share.
He regretted that instead of taxing the rich, feudal lords and revamping the taxation system with fresh orientation, our governments have found an easy way of getting loans from the International Monetary Fund or the United States of America to run the daily administration of the country.
He warned that patience of the common man has reached its limits, therefore it is high time that the rich and elite classes realise their obligation towards the state and contribute their share through direct taxes to ensure social and economic stability of the country.
According to a World Bank report, the 'low-yield' tax system weakened public services, increased inefficiencies while unfairness undermined economic growth and voluntary compliance. Pakistan's tax collection, the report said, remained far below that of successful emerging economies at around 10 per cent of GDP since late 1990s.
'Structural problems, such as a narrow tax base, tax evasion, distrust of taxpayers and administrative weaknesses, have taken a toll on tax collection,' it said, adding that some sectors were more heavily taxed than others.
The country's services sector 'makes only quarter of central taxes, due to low tax receipts from wholesale, retail, and transport sectors'. On top of this, Pakistan's tax rules and regulations are complicated, especially for indirect taxes, and some taxpayers have little knowledge on their obligation.
Provincial taxes contribute no more than 0.4 per cent of the national GDP, and as a result provincial governments largely depend on fiscal transfers from the central government to meet their expenditures.'