Pakistan's tax architecture needs to be fixed, for the economy, for society, and for national and regional security. We point to economic challenges and propose economic reforms. Presentation was prepared at the Centre for Aerospace & Security Studies (CASS).

1. DR. USMAN CHOHAN
DIRECTOR, ECONOMICS, CASS
Pakistan’s Tax Architecture
The Core of Economic Security
HASAN MUJTABA
RESEARCHER, ECONOMICS, CASS

2. “THE HARDEST THING IN THE WORLD TO
UNDERSTAND IS THE INCOME TAX.”
"TAXATION IS THE PRICE WHICH CIVILIZED COMMUNITIES
PAY FOR THE OPPORTUNITY OF REMAINING CIVILIZED."
- ALBERT EINSTEIN
C O L L E C T E D P A P E R S , V O L U M E 1 5
- ALBERT BUSHNELL HART
I N T R O D U C T I O N T O T H E S T U D Y O F F E D E R A L G O V E R N M E N T

3. THESIS
 Our tax system poses security risk
 Eliminates fiscal sovereignty
 Reclaim it:
 Broaden tax system
 Incorporate best practices
 Strive towards ideal tenets of taxation
 Bolster economy + security simultaneously
Low Tax
Receipts
Fiscal
Deficit
Borrowing
Lender’s
Agenda
Security
Risk

4. TREATY OF ALLAHABAD (1761)

5. IDEAL FORM
 Inculcate the 7 tenets of
an ideal tax system.
 Efficiency
 Simplicity
 Certainty
 Effectiveness
 Fairness
 Flexibility
 Neutrality
Efficiency
Simplicity
Certainty
Effectiveness
Fairness
Flexibility
Neutrality

6. Efficiency: Minimal
administrative and
compliance costs
Certainty: rules &
regulations are reliably
expected to continue
Simplicity: tax rules
are simple, concise,
easy to understand
Effectiveness: charges the right
amount from the right party at the
right time.
Fairness: respects value
systems and perceptions
of justice
Flexibility: adapt to
changing environments
and circumstances
Neutrality: charge similar amounts
through similar methods in similar
environments for similar activities

7. Efficiency: Minimal
administrative and
compliance costs
Certainty: rules &
regulations are reliably
expected to continue
Simplicity: tax rules
are simple, concise,
easy to understand
Effectiveness: charges the right
amount from the right party at the
right time.
Fairness: respects value
systems and perceptions
of justice
Flexibility: adapt to
changing environments
and circumstances
Neutrality: charge similar amounts
through similar methods in similar
environments for similar activities

10. Tax Indicators Score
Paying Taxes Ranking (/200 countries) 161st
Score of Paying Taxes (0-100) 52.9
Payments per Year 34 (too many)
Time Spent Preparing Taxes (Corporate Hours) 283
Total Tax and Contribution Rate (% of Profit) 33%
TAX - EASE OF DOING BUSINESS 2020

11. 1. BREADTH
Improving collection
from other taxes will
reduce GST
dependence
Lower income &
corporate tax thresholds
Resolve the “notch” issues Remove non-filer
status: tantamount
to accepting tax
avoidance

12. 2. SIMPLICITY
Simplify
exemption list
Revert to a single
schedule
Reduce number of Tax
Brackets
Use simple
language in forms
and tax code

13. 3. ACCESS
Translate forms into
Urdu
and regional
languages
Make the e-filing
system simple and
widely accessible.
Allow paper filing for
people unable to use
computerized forms

14. 4. INTER-AGENCY
COOPERATION
1. NADRA and FBR: Data-sharing on individual tax filer records
2. Judicial Reform: Improved judicial performance
3. Accountability institutions (NAB, FIA, etc.) with FBR
4. Federal + Provinces: Revenue Boards
5. Customs, Border Enforcement agencies, and FBR
6. Interagency coordination trace retailers & businesses evading sales tax

15. 5. BROADEN TAXABLE SECTORS
Reconsider
absence of
agricultural
income tax for
large landholdings
Diversify to
extremely
profitable free-
riders: private
schools and
hospitals.
Reduce
exemptions on
textile industry
Go hard on the
retailers and
traders
Mull a digital tax for
major digital
multinationals

16. 6. DIGITIZATION
Ensure data privacy &
data protection of citizens
/ take strong anti-hacking
measures
Consolidate online
portals and make
them more user-
friendly
Excise & Imports: use of
digital counters and portals
to accelerate customs
clearance and goods delivery
Switching to digital
modes of transactions

17. 7. CONSTITUTIONAL CHANGES
18th amendment is causing unsustainable
balance in country’s fiscal federalism,
hollowing out the centre.
Constitutional change in the sales
tax ordinance for services at federal
level (currently a provincial mandate
only)

18. 8. EXCISE & IMPORT
Tough anti-
smuggling regime,
smashing smuggling
syndicates, border
controls
Coordinate with Iranian
and Afghan authorities to
regularize cross-border
trade
Strike better balance
between trade
liberalization and
protectionism

20. CONCLUSION

21. DR. USMAN CHOHAN
DIRECTOR, ECONOMICS, CASS
Thank you
Questions?
HASAN MUJTABA
RESEARCHER, ECONOMICS, CASS