over view of two decades of taxation in pakistan

2. TAX REVIEW OF LAST TWO DECADES IN
PAKISTAN
TAX-TO-GDP RATIO, TOTAL AND OF INDIVIDUAL TAXES
1990-91 TO 2009-10
Direct
Taxes
Custom
s
Duty
Sales
Tax
Central
Excise
Duty
Indirect
Taxes
Total
FBR
Taxes
Surchar
ges
Total
Federal
Taxes
Total
Provinci
al
Taxes
Total
Provinc
ial
Taxes
1990-91
1.49
4.89
1.50
2.07
8.46
9.95
1.01
10.96
0.51
11.47
1994-95
2.74
3.45
1.94
1.94
7.33
10.07
0.92
10.99
0.50
11.49
19992000
2.95
1.61
3.05
1.46
6.12
9.07
1.02
10.09
0.47
10.59
2004-05
2.82
1.78
3.67
0.82
6.26
9.08
0.41
9.49
0.45
9.94
2006-07
2.85
1.52
3.57
0.82
5.91
9.76
0.74
10.50
0.42
10.92
2007-08
3.77
1.47
3.76
0.82
6.05
9.82
0.34
10.16
0.40
10.56
2008-09
3.47
1.16
3.55
0.91
5.62
9.09
0.99
10.08
0.36
10.44
2009-10
3.60
1.10
3.50
0.80
5.40
9.00
0.80
9.80
0.40
10.20

3. TAX REFORMS IN PAKISTAN
INCOME TAX
 In 1947 Income Tax Act 1922.
 First book of law dealing with income tax came in the form of the Income Tax Ordinance
1979.
 Income Tax Ordinance in the year 2001
SALES TAX
•
Sales Tax was primarily a provincial subject under the Indian Act of 1935
•
In 1948 Sales Tax was centralized through the law of the Pakistan General Sales Tax Act
1948.
•
Sales Tax Act of 1951 was adopted
•
Further incorporated 1990 Ordinance of the Sales Tax

4. CHANGES IN DIRECT AND INDIRECT TAXES
• A National Tax Reforms Commission was setup in 1985
 DIRECT TAXES
• The basic rate of tax for private companies should be reduced from 55% to 45%
• Existing pattern of tax incentives should be reviewed and the exemptions that favor
specific entities should be discontinued.
• Salaried Persons be required to file the standard return of total income under Self
Assessment Scheme
• All business income of charitable and religious trusts and welfare foundations may be
made subject to tax.
• Small retailers without account books and with annual turnover not exceeding
Rs.350,000/= be made subject to an annual tax of Rs.600/=
• Accounting records of the Income Tax Department should be computerized.

5. INDIRECT TAXES
• Major indirect taxes in Pakistan include the custom duties, the sales taxes and the central
excise duty.
Custom duties
•
Custom duties should not be used as the principal source of revenue generation
•
The base of custom tariff should be broadened and there should be no duty exempt items at all.
•
Ad valorem duties should be preferred over specific duties.
Sales taxes
•
Though value added tax (VAT) may not be implemented in Pakistan in its ENTIRETY at present, it
should be viewed as our objective in domestic taxation.
•
Sales tax should be levied across the board on all the imported goods and domestic production
other than agriculture produce and unprocessed food.
•
Standard rates of adjustment for different raw materials may be prescribed.

6.  Central excise duty
 Services of outside independent accountants/auditors/industrial
experts should be utilized in determining the presumptive
production.
 Surprise checks may continue to be conducted but by senior officers
 Penalties in the event of violation of rules shall have to be really deterrent
and the defaulters prosecuted

7.  PUNJAB AGRICULTURAL INCOME TAX ACT 1997
 Land revenue rates Punjab
Not exceeding 12½ acres
Nil
Exceeding 12½ acres but not
exceeding 25 acres
Rs.150/acre
Exceeding 25 acres
Rs.250/acre
50 acres or more
300/acre
 RATES OF TAX ON TOTAL AGRICULTURAL INCOME
Total income does not exceed
Rs.1,00,000/-
5% of total income.
Total income exceeds
Rs.100,000 but does not
exceed Rs.200,000
Rs.5,000 plus 7½ % of the
amount exceeding Rs100,000
Total income exceeds
Rs.200,000 but does not
exceed Rs.300,000
Rs.12,500 plus 10% of the
amount exceeding Rs.200,000
Total income exceeds
Rs.300,000
Rs.22,500 plus 15% of the
amount exceeding Rs.300,000
Reference (http://punjablaws.gov.pk/laws/398.html )

8. Those sector which pays high tax in Pakistan
 Pakistan Telecommunication
 Petroleum Levy
Those Sector which not pays tax in Pakistan
• Service sectors
Hospitals
Lawyers
• Catering business
• Construction sector
• Individuals

9. Challenges for text collection
 High inflation rate
 Corruptions
 Lack of proper mechanism

10. Recommendations
 Increasing tax net rather than tax rate
 Establish new institution that monitor big business to
collect their tax.
 Tax collection should be made on Municipal level as
well as provincial and federal level.