TAX REVIEW OF LAST TWO DECADES IN PAKISTAN

TAX-TO-GDP RATIO, TOTAL AND OF INDIVIDUAL TAXES 1990-91 TO 2009-10 Direct

TaxesCustomsDuty

SalesTax

CentralExciseDuty

IndirectTaxes

TotalFBRTaxes

Surcharges

TotalFederalTaxes

TotalProvincialTaxes

TotalProvincialTaxes

1990-91 1.49 4.89 1.50 2.07 8.46 9.95 1.01 10.96 0.51 11.47

1994-95 2.74 3.45 1.94 1.94 7.33 10.07 0.92 10.99 0.50 11.49

1999-2000

2.95 1.61 3.05 1.46 6.12 9.07 1.02 10.09 0.47 10.59

2004-05 2.82 1.78 3.67 0.82 6.26 9.08 0.41 9.49 0.45 9.94

2006-07 2.85 1.52 3.57 0.82 5.91 9.76 0.74 10.50 0.42 10.92

2007-08 3.77 1.47 3.76 0.82 6.05 9.82 0.34 10.16 0.40 10.56

2008-09 3.47 1.16 3.55 0.91 5.62 9.09 0.99 10.08 0.36 10.44

2009-10 3.60 1.10 3.50 0.80 5.40 9.00 0.80 9.80 0.40 10.20

TAX REFORMS IN PAKISTANINCOME TAX In 1947 Income Tax Act 1922.

First book of law dealing with income tax came in the form of the Income Tax Ordinance 1979.

Income Tax Ordinance in the year 2001

SALES TAX • Sales Tax was primarily a provincial subject under the Indian Act of 1935

• In 1948 Sales Tax was centralized through the law of the Pakistan General Sales Tax Act 1948.

• Sales Tax Act of 1951 was adopted

• Further incorporated 1990 Ordinance of the Sales Tax

CHANGES IN DIRECT AND INDIRECT TAXES• A National Tax Reforms Commission was setup in 1985

DIRECT TAXES

• The basic rate of tax for private companies should be reduced from 55% to 45%

• Existing pattern of tax incentives should be reviewed and the exemptions that favor specific entities should be discontinued.

• Salaried Persons be required to file the standard return of total income under Self Assessment Scheme

• All business income of charitable and religious trusts and welfare foundations may be made subject to tax.

• Small retailers without account books and with annual turnover not exceeding Rs.350,000/= be made subject to an annual tax of Rs.600/=

• Accounting records of the Income Tax Department should be computerized.

INDIRECT TAXES• Major indirect taxes in Pakistan include the custom duties, the sales taxes and the central

excise duty.

Custom duties • Custom duties should not be used as the principal source of revenue generation

• The base of custom tariff should be broadened and there should be no duty exempt items at all.

• Ad valorem duties should be preferred over specific duties.

Sales taxes

• Though value added tax (VAT) may not be implemented in Pakistan in its ENTIRETY at present, it should be viewed as our objective in domestic taxation.

• Sales tax should be levied across the board on all the imported goods and domestic production other than agriculture produce and unprocessed food.

• Standard rates of adjustment for different raw materials may be prescribed.

Central excise duty

Services of outside independent accountants/auditors/industrial experts should be utilized in determining the presumptive production.

Surprise checks may continue to be conducted but by senior officers

Penalties in the event of violation of rules shall have to be really deterrent and the defaulters prosecuted

PUNJAB AGRICULTURAL INCOME TAX ACT 1997

Land revenue rates Punjab

RATES OF TAX ON TOTAL AGRICULTURAL INCOME

Reference

(http://punjablaws.gov.pk/laws/398.html)

Not exceeding 12½ acres Nil

Exceeding 12½ acres but not exceeding 25 acres

Rs.150/acre

Exceeding 25 acres Rs.250/acre50 acres or more 300/acre

Total income does not exceed Rs.1,00,000/-

5% of total income.

Total income exceeds Rs.100,000 but does not exceed Rs.200,000

Rs.5,000 plus 7½ % of the amount exceeding Rs100,000

Total income exceeds Rs.200,000 but does not exceed Rs.300,000

Rs.12,500 plus 10% of the amount exceeding Rs.200,000

Total income exceeds Rs.300,000

Rs.22,500 plus 15% of the amount exceeding Rs.300,000

Those sector which pays high tax in Pakistan

Pakistan Telecommunication Petroleum Levy

Those Sector which not pays tax in Pakistan

• Service sectorsHospitals Lawyers

• Catering business

• Construction sector• Individuals

Challenges for text collection High inflation rate Corruptions Lack of proper mechanism

RecommendationsIncreasing tax net rather than tax rate

Establish new institution that monitor big business to collect their tax.

Tax collection should be made on Municipal level as well as provincial and federal level.