IMPLEMENTATION - IMPACT

PRESENTATION BY NAZISH GUL AND ANUM ASIF

INTRODUCTION
1. Taxation in Pakistan is a compulsory contribution to state revenue.

2. Pakistan like most of the taxation systems in the world are classified into two broad categories i.e. direct and indirect taxes.

DIRECT TAXES

INDIRECT TAXES

Income tax

Sales tax

Withholding tax Wealth and property tax

Custom duty tax and Excise

TAX REFORMS AND REASONS FOR TAX REFORMS

Tax reform is the process of changing the way taxes are collected or managed by the government. Pakistan has implemented an array of major tax reforms leading to the modernization of direct and indirect taxes.

IMPORTANT REASONS FOR TAX REFORMS

Some of the important reasons for tax reforms are: 1. Insufficient resources 2. low tax to GDP ratio 4. Narrow tax base

3. Complexity of tax laws

5. High tax rates 6. No scientific approach

ASSESSMENT OF TAX REFORMS IN PAKISTAN

. FIRST GENERATION REFORMS Widening Tax Base, Reforming GST Reducing Reliance on Excise Duties Rationalizing custom duties Reforming Income tax rates

SECOND GENERATION REFORMS Administrative Changes

Simplification Of Procedures

Self Assessment Schemes

Organizational management.

It can be seen in this graph that the highest decline in the revenue collected through tariffs is between 1992 and 2006 which is being compensated by increase in GST revenue.

REFORMS IN DIRECT TAXES

Historically, direct taxes have remained in force in Pakistan in the form of income tax, wealth tax. The wealth tax was later on abolished by the government. However major reforms have been made in income taxes. Income tax is levied on the total income of a person from all sources including: Salaries Interest on securities House property Business, professional or vocation, capital gains

INCOME TAX LAW IN PAKISTAN Evolution and Development

INCOME TAX ACT, 1922

INCOME TAX ORDINANCE, 1979

PRESUMPTIVE TAX REGIME,1991

INCOME TAX ORDINANCE, 2001

INCOME TAX ACT, 1922 When Pakistan came into being, the Government of Pakistan promulgated the Income Tax Act, 1922. A Taxation Inquiry Committee", was introduced in 1958. Some of the recommendations were accommodated which resulted in the amendment of Income Tax Act, 1922.

In 1961, FBR introduced an "Income Tax Committee". Main purpose of introduction of such committee was to make recommendations for simplification of the Income Tax Act, 1922.

INCOME TAX ORDINANCE, 1979 IMPACT The introduction of tax concessions for promoting preferred economic activities through granting of investment and tax credits, rebates, particularly during 1970s and 1980s. However, led to the use of several of the instruments as tax shelters ' by dishonest taxpayers.

Consequently, fairness, and 'equity' aspects of the taxation system were gradually diluted in the process of reconciling diverse, multiple economic objectives.

PRESUMPTIVE TAX REGIME IMPACT It prescribed a transaction based tax regardless of the fact that the person executing the transaction had earned any income or not. Though the objectives were initially achieved but the method changed the overall nature of the tax.

The taxpayers begun to shift forward the tax (incidence being known in advance) onto the customers. No doubt it increased the revenue collection considerably but it also transformed a direct tax into an indirect tax.

INCOME TAX ORDINANCE, 2001 Income Tax Ordinance, 2001 promulgated to reflects the policies of the government.

The policy is: 1. To facilitate the businesses 2. Broadening the tax base 3. Reduction in tax rates 4. Reduction in exemption 5. Reposition of confidence in taxpayers

INCOME TAX ORDINANCE, 2001 At present, the income tax law can broadly be classified into two categories viz. Income Tax Ordinance, 2001 and Income Tax Act, 1997 (taxation of agricultural income). The presently applicable system of regulating the income tax, is fully in line with the concept provided for in OECD. (Organization for Economic Co-operation and Development)

IMPACT The government feels that the results achieved through implementation of this system of taxation are encouraging. It is evident from the fact that the tax collection has increased from Rs 330 billion in the year 2000 to Rs 1,005 billion in year 2008 (direct taxes 82 billion to over 400 billion).

RECOMMENDATIONS

Reforms in indirect taxes In Pakistan

Introduction
Sales tax Forms of Indirect taxes

General sales tax Excise/custom duty tax

REFORMS IN SALES TAX Evolution and development

Sales Tax Act was introduced in the federal legislature on the 30th day of March 1951 to give effect to the recommendations of the committee. Sales Tax could not be charged on importation and exportation of commodities but on only consumption, this was further improved by the presidential order.

REFORMS IN SALES TAX Evolution and development

The presidential order, Taxation of Sales and Purchase Order, 1960, on according to which the power to impose taxes on the sales, purchases, consumption, importation, exportation, manufacture and production of goods was granted. Under the existing constitutional framework, the Federal government can impose taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed.

Proposed General sales tax system (RGST Reformed General Sales Tax)

The primary purposes underlying the introduction of the new GST was to neutralize the revenue loss that would arise from the reduction in import duties as a result of the tariff reforms. Standard rate of 15% has been proposed will apply on both at import and local supply stages.

Reforms In Custom Duties

These procedures were devised at a time when the volume of international trade and the number of import and export transactions were small and import tariffs were prohibitively high. In the existing constitutional framework, the Federal government can impose taxes on the imported and exported goods.

IMPACT OF TAX REFORMS IN PAKISTAN

Tax reforms increases economic efficiency Tax reforms help in expanding the tax base Tax reforms eliminated Tax evasion: a rich mans crime.

CHALLENGES / CONSTRAINTS TO TAX REFORMS

Absence of proper Tax Culture.
.

Inconsistency of policies

Narrow tax base e.g. nearly 80% of all indirect taxes originate from only eighteen commodities

Lack of political leadership to address the issue of low Tax/GDP Ratio in relation to comparable economies.

RECOMMENDATIONS
Implementing a broad-based modern form of tax system. To establish a fair and efficient tax system. To broaden the tax base and rationalize the tax rate. To exclude tax evasions.

RECOMMENDATIONS
To improve the effectiveness of tax collection process, reducing the tax payer and tax collector gap. Establishment of proper system of audit. Need to shift from manual system of operations to the fully automated.

CONCLUSION
Taxation is the government's source of revenue. An efficient tax system should raise enough revenue to finance essential expenditures of the government. Pakistan has to increase its tax sources in order to generate enough revenue. Tax administration should also be made stronger to promote effective tax culture.

Broaden the tax base

Rationalize the tax rate

RECOMMENDATIONS

Provide taxpayer services

Exclude tax evasions

Automated and information based system