Tax Conundrum

The recent release of the Active Taxpayer List by the Federal Board of Revenue (FBR) has cast a glaring light on Pakistan’s dire tax situation. With a staggering population of 241.49 million, the revelation that only 3.37 million individuals contribute as taxpayers paints a bleak picture of the country’s revenue collection efforts. This alarming discrepancy can be attributed to a disarray of inconsistent and flawed policy structures, which have unjustly burdened certain sectors and demographics while allowing others to evade their fair share.
The urgency to expand the tax base is undeniable, and a key avenue to achieve this is by focusing on the working class. Delving into statistics reveals that a substantial portion of the population falls within the taxable bracket. However, a more pressing concern lies in the deeply inequitable taxation policies that disproportionately affect the middle class. This sector finds itself shouldering an undue burden through income tax, while those with lower earnings are granted leniency. This skewed approach not only stifles the middle class’s financial growth but also undermines the principle of equitable taxation.
A comprehensive solution necessitates not just rectifying the existing policies but also addressing sectors that enjoy unfair exemptions. The glaring contrast between the agricultural and real estate sectors’ meagre tax contributions, despite their significant economic output, highlights the need for immediate correction. The agricultural sector, which contributes a substantial Rs11.5 trillion to the GDP, pays a mere fraction of its potential tax obligation. Such disparities exemplify the urgent need for a balanced and fair taxation system.
Beyond sectoral discrepancies, it is imperative for the government to tackle the mammoth informal economy. Pakistan’s informal sector contributes a staggering 32% to the GDP, amounting to approximately $457 billion. Bringing this segment into the formal tax base holds immense potential for both revenue generation and economic development. Comparing these figures with those of more developed economies, where informal sectors contribute below 10% of GDP, underscores the necessity of this move.
As a holistic approach, introducing a flat tax system warrants serious consideration. Such a system could potentially streamline the tax process, promote compliance, and ensure that the tax burden is equitably distributed across income levels. The government must orchestrate a synchronised effort to reform policies, broaden the tax net, and incorporate the undocumented economy.

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