Reforms in Indirect Taxes

8/3/2019 Reforms in Indirect Taxes

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IMPLEMENTATION - IMPACT

NAZISH GUL AND ANUM ASIF

PRESENTATION BY


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INTRODUCTION

1. Taxation in Pakistan is a compulsory

contribution to state revenue.

2. Pakistan like most of the taxation systems

in the world are classified into two broad

categories i.e. direct and indirect taxes.


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DIRECT TAXES

Income tax

Wealth

and

property tax

INDIRECT TAXES

Withholding tax

Sales tax

Custom duty tax

and Excise


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TAX REFORMS AND

REASONS FOR TAX REFORMS

Tax reform is the process of changing the

way taxes are collected or managed by the

government.

Pakistan has implemented an array of

major tax reforms leading to the

modernization of direct and indirect taxes.


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IMPORTANT REASONS FOR TAX REFORMS

Some of the important reasons for tax reforms are:

1. Insufficient resources 2. low tax toGDP ratio

3. Complexity of tax laws 4. Narrow tax

base

5. High tax rates

6. No scientific approach


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ASSESSMENT OF TAX REFORMS IN PAKISTAN

. FIRST GENERATIONREFORMS

Widening Tax Base,

Reforming GST

Reducing Reliance on Excise Duties

Rationalizing custom duties

Reforming Income tax rates


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SECOND GENERATION

REFORMS

Administrative Changes

Simplification Of Procedures

Self Assessment Schemes

Organizational management.


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It can be seen in this graph that the highest decline in the revenue

collected through tariffs is between 1992 and 2006 which is being

compensated by increase in GST revenue.


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REFORMS IN DIRECT TAXES

Historically, direct taxes have remained in force in

Pakistan in the form of income tax, wealth tax.

The wealth tax was later on abolished by the

government.

However major reforms have been made in income

taxes.

Income tax is levied on the total income of a person from

all sources including:Salaries

Interest on securities

House property

Business, professional or vocation, capital gains


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INCOME TAX LAW IN PAKISTAN

Evolution and Development

INCOME TAX ACT, 1922

INCOME TAX ORDINANCE, 1979

PRESUMPTIVE TAX REGIME,1991



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INCOME TAX ACT, 1922

When Pakistan came into being, the Government of Pakistanpromulgated the Income Tax Act, 1922.

A Taxation Inquiry Committee", was introduced in 1958.

Some of the recommendations were accommodated which

resulted in the amendment of Income Tax Act, 1922.

In 1961, FBR introduced an "Income Tax Committee".

Main purpose of introduction of such committee was to make

recommendations for simplification of the Income Tax Act,

1922.


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IMPACT

The introduction of tax concessions for promoting preferred

economic activities through granting of investment and tax

credits, rebates, particularly during 1970s and 1980s.

However, led to the use of several of the instruments as tax

shelters ' by dishonest taxpayers.

Consequently, fairness, and 'equity' aspects of the

taxation system were gradually diluted in the

process of reconciling diverse, multiple economic

objectives.


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PRESUMPTIVE TAX REGIME

IMPACT

It prescribed a transaction based tax regardless of the fact that

the person executing the transaction had earned any income or

not.

Though the objectives were initially achieved but the methodchanged the overall nature of the tax.

The taxpayers begun to shift forward the tax (incidence

being known in advance) onto the customers.

No doubt it increased the revenue collection considerably but

it also transformed a direct tax into an indirect tax.


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Income Tax Ordinance, 2001 promulgated to reflects the

policies of the government.

The policy is:

1. To facilitate the businesses

2. Broadening the tax base

3. Reduction in tax rates

4. Reduction in exemption5. Reposition of confidence in taxpayers


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At present, the income tax law can broadly be classified intotwo categories viz.

Income Tax Ordinance, 2001 and

Income Tax Act, 1997 (taxation of agricultural income).

The presently applicable system of regulating the income

tax, is fully in line with the concept provided for in

OECD.

(Organization for Economic Co-operation and

Development)



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The government feels that the results achieved through

implementation of this system of taxation are encouraging.

It is evident from the fact that the tax collection has

increased from Rs 330 billion in the year 2000 to Rs 1,005

billion in year 2008 (direct taxes 82 billion to over 400

billion).

IMPACT


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RECOMMENDATIONS


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Reforms in indirect taxes

In Pakistan


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Introduction

Forms of Indirecttaxes

Sales tax

Excise/custom

duty tax

General sales

tax


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REFORMS IN SALES TAX

Evolution and development

Sales Tax Act was introduced in the federal

legislature on the 30th day of March 1951 to

give effect to the recommendations of the

committee.

Sales Tax could not be charged on

importation and exportation of commodities

but on only consumption, this was furtherimproved by the presidential order.


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REFORMS IN SALES TAX

Evolution and development

The presidential order, Taxation of Sales and

Purchase Order, 1960, on according to which the

power to impose taxes on the sales, purchases,

consumption, importation, exportation, manufactureand production of goods was granted.

Under the existing constitutional framework, the

Federal government can impose taxes on the sales

and purchases of goods imported, exported,

produced, manufactured or consumed.


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Proposed General sales tax system (RGST

Reformed General Sales Tax)

The primary purposes underlying the

introduction of the new GST was to neutralize

the revenue loss that would arise from the

reduction in import duties as a result of the

tariff reforms.

Standard rate of 15% has been proposed will

apply on both at import and local supplystages.


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Reforms In Custom Duties

These procedures were devised at a time when

the volume of international trade and the

number of import and export transactions were

small and import tariffs were prohibitively

high.

In the existing constitutional framework, the

Federal government can impose taxes on theimported and exported goods.


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IMPACT OF TAX REFORMS IN

PAKISTAN

Tax reforms increases

economic efficiency

Tax reforms eliminatedTax evasion: a rich mans

crime.

Tax reforms help inexpanding the tax base


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CHALLENGES / CONSTRAINTS TO

TAX REFORMS

.

Inconsistency of

policies

Lack of political

leadership to address

the issue of low

Tax/GDP Ratio in

relation to comparable

economies.

Absence of proper Tax

Culture.

Narrow tax base e.g.

nearly 80% of all

indirect taxes originate

from only eighteen

commodities


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RECOMMENDATIONS

Implementing a broad-based modern form of

tax system.

To establish a fair and efficient tax system.

Tobroaden the tax base and rationalize the tax

rate. To exclude tax evasions.


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RECOMMENDATIONS

To improve the effectiveness of tax collection

process, reducing the tax payer and tax

collector gap.

Establishment of proper system of audit.

Need to shift from manual system of

operations to the fully automated.


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CONCLUSION

Taxation is the government's source of

revenue. An efficient tax system should raise

enough revenue to finance essential

expenditures of the government.

Pakistan has to increase its tax sources in order

to generate enough revenue.

Tax administration should also be made

stronger to promote effective tax culture.


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RECOMMENDATIONS

Broaden the tax base

Rationalize the tax rate

Exclude tax evasions

Provide taxpayer services

Automated and

information based system

Reforms in Indirect Taxes

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