TAXATION SYSTEM IN PAKISTAN

TAXATION SYSTEM IN PAKISTAN

Taxation in Pakistan is a very complex system including

more than 70 different taxes and nearly 37 different
government agencies administer the tax system. Around
10 million people are registered to pay taxes but only 1.9
million people pay taxes in 2002.

Transparency International studied 256 respondents,

among which 99% were facing corruption regarding to
taxation.

Pakistan is one of the developing countries where tax to

GDP ratio is very low.
 HISTORY
From 1947 the sales tax was introduced at provincial
level which was covering a limited area of commercial
activities. In 1951 it was converted into a federal tax in
1951. The Government of Pakistan setup a National
Tax Reforms Commission in 1985 to provide
recommendations to improve the taxation system in
Pakistan.

, the Sales Tax Act was introduced in 1990, it was a

value added version named as General Sales Tax (GST).
In 1995-96, GST was transformed into a complete VAT
mode tax with its basic structures.

In 1997-98 the tax base was extended to importers,

retailers and wholesalers. GST was only covering the
goods before 1990, which later on covered the services
sector also. Tax collection was increased from 1990’s to
2000’s collecting US$ 2.67 billion in the recent years.
Main Concern of Pakistan’s Tax Policy
Government collect taxes from its people in order to spend the collection on the
welfare of its people which includes national defense, debt servicing and other
welfare related issues.

Our current tax collection system is very weak which comprises of loopholes in
the system accompanied by the corruption of Federal Board of Revenue (FBR)
officers which speaks about the justice and equity of our government officials for
their people.

Initially the foreign lenders did not set any targets for us because they somehow
believed in our commitments and also felt that we will pay them back their money
as per the signed agreement but after the several failures of debt servicing,
lenders started to analyze the root cause of this issue in which they found our tax
collection system complied with old methodology of taxation i.e. General Sales
Tax (GST) in which all the tax collected at the last stage which makes them aware
of the fact that as a corrupt nation and low tax net economy it will become more
difficult for them to collect their lent amount from us which lead IMF to set
targets for us.
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Main Concern of Pakistan’s Tax Policy……….

The reason they feel our system is outdated because now most of the countries
in the world including the developing countries are eliminating the loopholes in
tax collection system by introducing the Value Added Tax (VAT) and by increasing
the tax net through VAT.

Now the question arises what are the reasons for government to obey the rules
set by International Monetary Fund (IMF). Firstly, we do not have enough liable
system and funds by which we can manage our economy because of which we
need IMF’s support so that we can run our affairs smoothly.

Secondly, reforming Pakistani taxation; certain actions such as reestablishment

of the State Tax Organization, restructuring the law of direct taxation, introducing
and implementing the value added tax, as a complimentary to the reformation of
the existing law of direct taxation and as an efficient and co-ordinate tool with the
economic situation of the country has been taken in to account. Also, In General
Sales Tax (GST) which is based on the percentage of sales, State loses 100 percent
when someone evades tax whereas in Value Added Tax (VAT), a taxation system in
which tax is applied in production process whenever the value is added to the
product, if tax is evaded at one value addition stage government loses only some
part of the tax.