Determination of Direct Tax/Income-Based Method
According to available data, total number of persons having taxable income of more than Rs. 400,000 is around 10 million and tax base is around Rs. 50 trillion (after taking into account informal economy). Flat rate taxation of just 10% with strong enforcement system will yield Rs. 5 trillion under income tax alone.
Determination of the Indirect Tax Base
All existing indirect taxes should be replaced both at the federal and provincial levels with Harmonized Sales Tax (HST). There are multiple tax collection authorities now, rendering the life of the ordinary citizen miserable since he is unable to comprehend complex laws without having to pay heavily to professionals.
If the present indirect taxation is replaced with HST as in a comparable federation like Canada, it would not only improve revenue collection but would also help to alleviate the sufferings of taxpayers who have suddenly been bombarded by multiple tax authorities.
In the Pakistani milieu if a single-stage 8% HST is levied, it would yield at least Rs. 3 trillion both at federal and provincial levels. A comprehensive study, courtesy Tax Reform Commission (TRC), is already with FBR. In this study, prepared by a sub-committee of TRC, even the matter with respect to cascading of prices has been addressed and dealt with satisfactorily.
- We need amendments in Constitution to ensure judicious distribution of taxation rights between the federation and its units. Unless it is done, the provinces will continue to remain hugely dependent upon federal transfers. We need to levy harmonized sales tax on goods and services and proceeds should go directly to the province where goods and services emanate. Income tax on all kinds of incomes, including agricultural income should be with the federal government.
- If we want optimum collection of taxes fairly and without hampering growth, it is imperative to abolish the present tax laws and enact new ones.
- Collection of taxes through National Tax Authority (NTA). The governments—federal and provincial—shall ensure universal pension for every citizen and tax other tax related programmes as discussed above. NTA to ensure tax compliance on behalf of governments across Pakistan, thereby contributing to the economic and social well being of Pakistanis.
- Establishment of a Tax Intelligence System sending quarterly information to potential taxpayers about their economic activities so that they can be informed in advance as to how their incomes and expenditure should finally look like in their tax declarations.
- Prudent spending of public money through a transparent process enjoying the confidence of the people.