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Implications of low tax to GDP ratio

Implications of low tax to GDP ratio

According to a report appearing in Customs Today, Pakistan is facing serious challenges in the delivery of essential services due to low tax to GDP ratio. At least 23 percent of the country’s population lives below the poverty line and another 50 percent is facing food insecurity.

According to survey reports, Pakistan has one of the lowest tax to GDP ratio in the world as only 0.9 percent of the population pays income tax and ranks 23rd from the bottom of a list of 176 countries.At least 80 percent population of Canada pays taxes,the ratio is 54 percent in Sweden,and even the ratio of Indianstaxpayers is 4.7 percent, which ismore than Pakistan.The condition of tax collection in Pakistan is that only a few hundred thousand have filed income tax returns this year.

Financial experts believe that reforms in the tax collection system are necessary and tax base has to be broaden. This can only happen if capacity of the government officials is improved and civil society is involved to educate the masses.A transparent tax system is need of the hour with availability of all tax-related information for the common payers.

In Pakistan, there is a general tendency in well-to-do people to dodge the tax authorities, but the poor and salaried classes have no option but to pay direct or indirect taxes. The tax of salaried individuals is deducted from their salaries at source under the Income Tax Ordinance 2001. At least 100 top companies pay 82 percent of all the sales tax and excise duty. At least 3.1 percent of the government’s total tax revenue is collected from the income tax on salaried individuals while 92.2 percent of the labour force does not make enough money to pay income tax. Karachi is the industrial and trade center and 37.8 percent of all taxes are collected from the city while 37.5 percent of all taxes are collected at the two sea ports in the country.The legal exemptions cost the national exchequer Rs 650 billion.

One of the major reasons for low tax toGDP ratio is the lack of trust of the taxpayers in the government machinery. People believe the government treasury focuses on frivolous expenditureand instead of paying taxes, they pay billions of rupees annual donations to non-governmental organisations. The government is the custodian of the public money and lavish spending by the officials cannot be ignored or justified. Instead of squeezing the existing taxpayers or the documented sectors, the government should have to look for other options and one of which is the enhancing of tax to GDP ratio.