The tax culture in Pakistan is small and underdeveloped, and several challenges contribute to this. Several factors influence how taxes are perceived and collected, leading to a generally weak tax culture in the country. One of the primary issues is that a significant portion of Pakistan’s population and businesses avoid or evade taxes. This is due to various factors, such as a lack of trust in the government, and the perception that there is limited enforcement of tax laws. Many people in Pakistan do not fully understand the importance of paying taxes. This is partly because tax education and awareness campaigns are limited, and many people do not realize the direct link between taxes and improving public services. A greater portion of Pakistan’s economy operates in the informal sector, where businesses and individuals avoid formal taxation. Informal businesses often do not have the necessary records or willingness to participate in the tax system. Corruption within the tax collecting agencies also affects tax culture. This discourages people from paying taxes, as there is a strong belief that their money is not used for the public good. High taxes can also contribute to evasion, as people seek ways to minimize their liability. However, some argue that the tax system needs measures that are more progressive. The tax system in Pakistan can be quite complicated, with multiple layers of taxation (e.g., income tax, sales tax, customs duties). For small businesses and individuals, the complexity of the system can be overwhelming, leading to non-compliance. There have been efforts to improve tax collection and increase awareness. For example, the Federal Board of Revenue (FBR) has introduced digital platforms and reforms to increase transparency and ease of filing. However, these reforms have not always been successful in achieving long-term changes in the tax culture. People often perceive the government as inefficient, with public funds misused or wasted. As a result, many are reluctant to pay taxes, as they do not see the benefits of doing so. Addressing these issues requires comprehensive reforms, including improving the efficiency and transparency of the tax system, enhancing tax education and awareness, and building public trust in government institutions. A comprehensive analysis of Pakistan’s fiscal and economic challenges, especially focusing on the tax-to-GDP ratio and its broader implications is necessary. Pakistan’s tax-to-GDP ratio, at around 9-10%, is significantly lower than many other countries, and yet Pakistan faces a much higher expenditure burden primarily due to a combination of mounting debt repayments, losses in state-owned enterprises, and large subsidies. The rising fiscal deficit, which is at the heart of Pakistan’s financial instability, is not just due to insufficient tax revenue but also the unsustainable allocation of collected taxes to servicing debt and maintaining loss-making public enterprises. The concerning trend of decreasing per capita income and an increasing poverty rate inevitably reduces the country’s overall taxpaying capacity. This is crucial, as taxation can only be sustainable when a majority of the population has the economic ability to contribute. The emphasis on Pakistan’s corporate tax rates, which are among the highest globally, is another significant point. Over-taxation of businesses, especially in an environment where economic growth is already sluggish, hampers profitability and discourages both domestic and foreign investments. Lowering taxes, fostering a business-friendly environment, and promoting economic activities could help broaden the tax base, ultimately leading to a more sustainable fiscal situation. The challenge is multidimensional. While increasing the tax-to-GDP ratio is one step, it must be paired with systemic reforms, economic growth, efficient use of public funds, better governance, and tackling corruption in public institutions. Without addressing these structural problems, increasing tax collection alone will not be sufficient to resolve the fiscal crisis.
PML-N MPA along with his associates assaulted SHO Sangjani for stopping his vehicle, police took him into custody
Islamabad: In Islamabad, the police stopped PML-N member of the provincial assembly Zahir Khan for putting on a fancy number...
Read more