Islamabad Chamber of Commerce & Industry has called upon the government to focus on increasing the share of direct taxation in in tax structure to mobilize more tax revenue and strengthen the economy.

 

Muhammad Shakeel Munir, Acting President, Islamabad Chamber of Commerce & Industry said that Pakistan’s tax revenue as a percentage of GDP is lowest amongst the emerging markets and its main reason is that our policymakers have always adopted a vertical tax approach and relied more on indirect taxes, which has put more burden on the common man instead of improving tax revenue of the country. 

 

He said Pakistan’s direct tax collection has not progressed properly, rather it remained flat at about 38-39 percent over the last five years while the rest of the tax revenue is collected through indirect taxation, which is highly regressive in nature and brings more problems for the general public. 

 

He said even most of the direct tax is collected in indirect mode as withholding tax and advance taxes account for more than 90 percent of total direct tax collection while only withholding tax constitutes 65 percent of net direct tax collection. Similarly sales tax contributes about 44 percent share to total tax revenue; however, it is highly inflationary and is a major cause of high prices in the country as it badly affects the downtrodden sections of the society.

 

M. Shakeel Munir stressed that instead of relying on regressive taxes to generate tax revenue, government should adopt horizontal tax approach by lowering tax rates to broaden the tax net, which will contribute positively in improving the low tax-to-GDP ratio and tax revenue of the country. 

 

He was of the view that the government cannot achieve revenue targets until radical reforms and restructuring is done in the current tax system. He said government should simplify the complicated tax procedures and develop a fair taxation system that should be simple, transparent and administratively easy to adopt and comply with. Such a tax system will help in formalizing the economy, mobilizing more tax revenue, encouraging economic growth, facilitating growth of business activities and delivering better social services to the people.