LAHORE: Direct taxes are more progressive as they are collected directly from those who have the ability to pay whereas indirect taxes are passed on to the end consumers and their impact on the relatively poorer sections of society is more in percentage’s terms than on the richer households. In the given conditions, the FBR needs to identify the shortcomings of the taxation system and take new measures to raise the quantum of direct taxes in the total revenue collection.
These views were expressed by Pakistan Hong Kong Chamber of Commerce and Industry Director and Lahore Chamber of Commerce’s former Executive Member Khawaja Khawar Rasheed while talking to Customs Today.
He said Pakistan’s tax structure is overly dependent on indirect taxes. However on account of various tax reforms, the proportion of direct taxes has risen in recent years. Indirect taxes, which accounted for 68.5 percent of the total taxes collected in Financial Year 2006, came down to 60pc in 2015, he informed, adding on the other hand, direct taxes increased from 32pc in 2005 to 40pc in 2016.
In advanced economies, revenue collection shows a preponderance of direct taxes over indirect taxes as the state taxes the rich to help the poor, Rasheed said. But in our case the balance is tilted in the reverse direction, quoting figures from a recent report, he said that available tax figures show that revenue collection on account of direct taxes stood at Rs1191billion out of the total net revenue of Rs3112billion in the last fiscal year.
On the other hand, direct tax collection stood at Rs1033billion out of the total net revenue collection of Rs2589.9billion. Tax collection on account of Federal Excise Duty was Rs190billion out of the total revenue collection of Rs3112billion in 2015-16 as compared to Rs162.5billion in total revenue collection of Rs2589.9billion in the preceding year. But customs duty collection saw a rise amounting to Rs406.2billion during the last fiscal year against Rs306billion in 2014-15.
No doubt, the total revenue ofRs3112billion collected in 2015-16 showed a growth of 20.2 percent over the preceding year’s figure. The tax-to-GDP ratio also jumped from 9.4 percent to 10.5 percent in Fiscal Year 2015-16. But the growing imbalance between direct and indirect taxes underlines structural problems and should be a matter of concern to the managers of the national economy, he pointed out.
Although belatedly, the government has directed the Federal Board of Revenue to prepare a comprehensive plan for increasing direct taxes in the next finance bill. In this connection, the government is likely to adopt modules adopted by some countries to increase direct taxes, especially the Indonesian experiment, which has proved successful in mobilizing more revenue, he said, hoping that such measures on the part of the government’s efforts to raise revenue collection and increase the number of taxpayers in the country will yield good results.
