Indirect taxation is a sugar coated pill given to the public at large. Under the indirect taxation system, the individuals who live even below the poverty line are made to pay taxes. A tax is a financial charge which the state imposes on well-to-do individuals or business concerns to collect revenue for various public expenditures. However, governments also collect taxes from individuals under various categories such as sales tax, value added tax, goods and services tax. According to a commercial rule, if you buy a commodity in wholesale, you pay less, but under indirect taxation rule, if you buy more, you pay more. Experts note with concern the trend of indirect taxation in Pakistan which only affects the common man. The low tax-to-GDP ratio is also a problem area for the tax collection authorities.
Addressing a seminar, former finance minister Dr Hafeez Pasha blames the tax evasion and corruption as the main causes of low tax-to-GDP ratio in the country. He also says that tax exemptions given to the rich and the powerful strata of society have made the revenue collection system more regressive. He also terms increase in the general sales tax from 16 to 17 percent very “ill-advised”. The imposition of 2 percent import duty on non-dutiable products, raising taxes on high speed diesel and regulatory duty on furnace oil will adversely affect the common man as this kind of indirect taxation will increase the cost of food products as well electricity. However, this is the country in which many individuals find loopholes to benefit from imbalanced taxation system. According to Pasha, there are 65,000 registered companies in Pakistan, but hardly one third of them file tax returns. Many entities in corporate sector, which file zero profit, could have earned billions of rupees but escape the grip of law. Only individual taxpayers are chased. He says that at least 13,000 landlords in the country own six million acres of land with preferential access to water, but their income is not taxed.
As a matter of fact, if the government wants to enhance tax revenue, it will have to broaden tax net and if it wants to broaden tax net, it has to start documentation of the economy. Every business, even a vendor, should be registered with a government authority. A tax collection machinery equipped with data and details of every business is indispensable to make the tax collection process a success otherwise the ultimate failure is a fait accompli.
