Improving Pakistan's Tax to GDP Ratio : A social perspective

[sparklingway]

Pakistan has one of the world's lowest Tax to GDP ratios. It has stood between 9.5% and 10.4% since long and is extremely low compared to neighboring countries and similar economies.

The OECD average is around 36 percent with true welfare states like Norway and Sweden having Tax to GDP ratios as high as 43.6 and 49.7 percent respectively.

The only countries with a worse performance are:

Sierra Leone (10.5), Gabon (10.3), Mexico (9.7), Haiti (9.4), Bangladesh (8.5), Cambodia (8.0), Algeria (7.7), Central African Republic (7.7), Iran (7.3), Yemen (7.1), Afghanistan (6.4), Sudan (6.3), Nigeria (6.1), Congo (5.9), Angola 5.7, Saudi Arabia (5.3), Burma (4.9), Chad (4.2), Bahrain (2.4), Libya (2.7), Qatar (2.2), Oman (2.0), Equatorial Guinea (1.7), Kuwait (1.5) and UAE (1.4).

The miserable state of our ability to collect sales, income, property and wealth tax (let's say all forms of tax) has forced successive governments to increase indirect taxation in the forms of high GST, increased withholding tax and increasing the prices of basic utilities to increase revenue generation. Increases in tax collection are hardly keeping up with increased budgets and GDP. Over the last ten years, indirect taxation has increased on the average by 22.02 percent (FBR Yearbook '07-'08) thanks to near static income tax collection. Tax to GDP ratio of direct taxes stand at an abysmal 3.7 percent.

While the WB has been pushing forward some big measures with the FBR in the form of tax readjustment policies like the VAT, the biggest problem remains social as people do not feel it as their duty to pay taxes yet they demand services.

I'm hoping that you people can highlight why small business owners remain the biggest tax thiefs in this country and property tax remains as elusive as it is. I'm looking for more of a social answer rather than one based on readjustment policies.

In my honest opinion, people who do not pay taxes have no right to demand services (I'm saying "demand" services) and people who do not vote have no right to demand accountability or a change in policy.

The tax structure across OECD countries :-



PS:- India has been having the same problems as us and there are serious doubts over its ability to increase tax collection as dramatically as it needs to. And can anyone help me understand what is the correlation between such a low Tax to GDP ratio and oil producing countries.

 

[ajpirzada]

i can partly understand why small businesses do not pay tax or pay very less of it. the idea is that they are given relief in order to help them in their expansion. but the question is.. do they really want to expand? or can their industry allow them to expand? etc... not sure if these questions get answered before any exemption is given.

wat do you guys think of VAT? recently there has been many articles speaking against it. though im all in favour of it. currently its dancing in provincial assemblies. hope it gets approved.

then capital gain tax will be coming in this year. and hopefully agricultural tax from 2011. percentage of both these taxes will increase gradually. if everything goes without any political intereference we should be able to achieve tax to GDP ratio of 13% by 2014.

 

[sparklingway]

The only people who have been crazy about the VAT are as usual the small and medium business owners who have been very vocal through their representation in the chambers of commerce. As VAT aims to establish a double check (buyer and seller side) on sales/purchases of a bigger value and makes it compulsory to maintain account books and sale receipts, small business is obviously angry as this might just extract the necessary tax from them. Their arguments have been idiotic to say the least (e.g اب دہی بھللے والے کو بھی رسید بنا کر دینی ہو گی).

FBR has promised that within a three year period they will bring down the percentage of VAT from the current GST level to ease the angry crowd (because they know VAT collections will be higher and better).

Agriculture surely needs to be brought into the net. As minimum taxable income is Rs. 180,000; the small farmer should need not be worried. It's time the feudals pay for the earnings. Whenever any government has even discussed tax on agricultural income, the parliamentarians go nuts as many of them being feudals might just loose a percentage of their wealth. This government has amassed quite a bundle of big achievements under its arm (NFC, Gilgi-Baltistan, 18th Ammendment, Balochistan Package) despite its vastly poor performance. I hope they get the nerve not only to table an amendment in the ITO 2002 to bring agriculture into the tax net, but pass it clean and clear without any compromises.

 

[waraich66]

Pakistan has one of the world's lowest Tax to GDP ratios. It has stood between 9.5% and 10.4% since long and is extremely low compared to neighboring countries and similar economies.

The OECD average is around 36 percent with true welfare states like Norway and Sweden having Tax to GDP ratios as high as 43.6 and 49.7 percent respectively.

The only countries with a worse performance are:

Sierra Leone (10.5), Gabon (10.3), Mexico (9.7), Haiti (9.4), Bangladesh (8.5), Cambodia (8.0), Algeria (7.7), Central African Republic (7.7), Iran (7.3), Yemen (7.1), Afghanistan (6.4), Sudan (6.3), Nigeria (6.1), Congo (5.9), Angola 5.7, Saudi Arabia (5.3), Burma (4.9), Chad (4.2), Bahrain (2.4), Libya (2.7), Qatar (2.2), Oman (2.0), Equatorial Guinea (1.7), Kuwait (1.5) and UAE (1.4).

The miserable state of our ability to collect sales, income, property and wealth tax (let's say all forms of tax) has forced successive governments to increase indirect taxation in the forms of high GST, increased withholding tax and increasing the prices of basic utilities to increase revenue generation. Increases in tax collection are hardly keeping up with increased budgets and GDP. Over the last ten years, indirect taxation has increased on the average by 22.02 percent (FBR Yearbook '07-'08) thanks to near static income tax collection. Tax to GDP ratio of direct taxes stand at an abysmal 3.7 percent.

While the WB has been pushing forward some big measures with the FBR in the form of tax readjustment policies like the VAT, the biggest problem remains social as people do not feel it as their duty to pay taxes yet they demand services.

I'm hoping that you people can highlight why small business owners remain the biggest tax thiefs in this country and property tax remains as elusive as it is. I'm looking for more of a social answer rather than one based on readjustment policies.

In my honest opinion, people who do not pay taxes have no right to demand services (I'm saying "demand" services) and people who do not vote have no right to demand accountability or a change in policy.

The tax structure across OECD countries :-



PS:- India has been having the same problems as us and there are serious doubts over its ability to increase tax collection as dramatically as it needs to. And can anyone help me understand what is the correlation between such a low Tax to GDP ratio and oil producing countries.

Saudi Arabia not charging tax on salaries and their no surcharges on water and power and fuel instead they are providing 50% subcidies .