Federal Board of

Revenue

Accelerating Tax Reforms in Pakistan

Dr Manzoor Ahmad
Chief Executive, World Trade Advisors
manzoor@worldtradeadvisors.com
www.worldtradeadvisors.com

February 2013

www.worldtradeadvisors.com

Three key questions

1. Whats wrong with our Tax Policy?

2. How can we move in the right direction?
3. What key reforms are needed for each type of tax?

Whats wrong with our Tax Policy

Its not fair

Impedes economic growth and creates distortions

Highly opaque and thus makes it easy to indulge in

corrupt practices

Yields one of the worlds lowest tax to GDP ratios (115th

out of 179 countries)

Why it is unfair
Income Tax
It lets the rich get away without paying their fair share
No tax on wealth and gift or inheritance (estate duty)
Nominal tax on agricultural income
Different sources of income treated differently
Income created through inactive activities receives preference

Customs tariff discriminates against the following

Small and Medium enterprises
Poorer regions through high protection of industries in more developed areas
The poor by taxing items consumed by them

Sales Tax
Sales tax regime full of loopholes

How our Tax Policy impedes economic growth

It relies for taxes on international trade

It discriminates against more productive

economic activities, particularly manufacturing

It provides opportunities for corruption

Pakistans inward looking policies and its results

Value of exports in 2010
250

US $ billion

200

150

100

50

Pakistan

Turkey

Indonesia

Thailand

Brazil

Malaysia

Our Tax Policy is opaque and convoluted

Customs tariff: 54 % of tariff lines have different tariff

rates for different importers through SROs

Income tax: It takes 560 hours per year preparing and

filing returns and paying taxes compared to 227 hours in
East Asia

Sales Tax multiple rates (0, 5%, 7%, 16%, 19.5%, 22% &
3% additional tax on commercial importers)

Withholding income tax in many cases is not an income

tax but is an indirect tax like customs duty, which is
passed on to consumers
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An example of taxes on imports and complexity of

Customs tariff
Commodity Description

CD

ST

FED

WHT

SROs

FTAs

Other Req.

General principles for moving in the right direction

Expand the base of direct taxation

Reduce reliance on taxes on international trade

Eliminate discrimination between incomes

earned in different ways

Greater transparency

Recommendations for Income Tax

Tax all income above a certain threshold irrespective

of source

Re-introduce wealth, gift, inheritance (estate) taxes

There should be correlation between an individual's

living costs and his declared income

Recommendations for Customs Duty

Abolish all duty concession SROs

Lower tariff rates to those applicable to FTA partners

Keep a maximum of four tariff slabs

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Recommendations for Sales Tax

Overhaul the system by getting rid of exemptions

Merge various rates into a single or two-rates (other

than a zero rate for exports)

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Conclusions

1. Our Tax Policy is seriously flawed; impedes economic

growth and is opaque
2. Can be rectified by reducing taxes on international
trade; expanding the base of direct taxes; eliminating
discrimination between incomes earned in different
ways; and ensuring greater transparency

The best time to plant a tree is twenty years ago.

The second best time is now. Chinese Proverb

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