A World Bank report has pointed out very serious issue regarding tax liabilities and tax administration in the country. It says that frequent revision of tax regulations and unpredictable tax rules have not only worsened business climate but also deterred the potential investment in Pakistan. The core issues highlighted in the report include complex regulations which it says are difficult to administer and comply with while the vague language of tax laws makes it difficult for small business enterprises to apprehend their tax liabilities. The multiple interpretations of the laws provide a room for both firms and tax authorities to exploit the situation in their favours. The report also says that frequent changes in tax laws mean the taxpayers have to continuously follow tax notifications published in the official gazette to keep themselves abreast of their tax obligations. The report says that the governments in Pakistan and Bangladesh are among the South Asian nations which frequently make changes in their tax regulations.
According to the report, administrative burden of tax compliance is very difficult in Pakistan where firms have to make 47 payments and spend 594 hours or 74 man days per year to deal with tax regulations as compared to 12 payments and 175 hours in high income countries. At least 87 percent time in Pakistan is consumed on dealing with taxes or 514 hours per year is spent to comply with value added tax. The report says that 29 percent firms in Pakistan offer gifts to tax officials while corruption not only harmsbusinesses, but also shatters the confidence of the business community in government institutions. As a result, a large portion of population is afraid of coming under the tax net. The report also highlights the issue of corporate income tax in South Asia, saying it has the higher rate than in other developing regions. The average corporate income tax rate in Pakistan and other South Asian nations such as Bangladesh, India and Sri Lanka is 32 percent as compared to the global average of 24 percent. The rates of corporate income tax have been reduced in all regions during the past decade.
As a matter of fact, not all the official machinery is corrupt, but presence of black sheep is also admitted on the official level. The government has taken several measures to purge the government departments, especially the Income Tax Department of corrupt elements. However, until and unless the government introduces structural reforms in the official machinery, the dream of a corruption free Pakistan would remain a far cry.
