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IMPLEMENTATION - IMPACT
NAZISH GUL AND ANUM ASIF
PRESENTATION BY
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INTRODUCTION
1. Taxation in Pakistan is a compulsory
contribution to state revenue.
2. Pakistan like most of the taxation systems
in the world are classified into two broad
categories i.e. direct and indirect taxes.
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DIRECT TAXES
Income tax
Wealth
and
property tax
INDIRECT TAXES
Withholding tax
Sales tax
Custom duty tax
and Excise
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TAX REFORMS AND
REASONS FOR TAX REFORMS
Tax reform is the process of changing the
way taxes are collected or managed by the
government.
Pakistan has implemented an array of
major tax reforms leading to the
modernization of direct and indirect taxes.
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IMPORTANT REASONS FOR TAX REFORMS
Some of the important reasons for tax reforms are:
1. Insufficient resources 2. low tax toGDP ratio
3. Complexity of tax laws 4. Narrow tax
base
5. High tax rates
6. No scientific approach
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ASSESSMENT OF TAX REFORMS IN PAKISTAN
. FIRST GENERATIONREFORMS
Widening Tax Base,
Reforming GST
Reducing Reliance on Excise Duties
Rationalizing custom duties
Reforming Income tax rates
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SECOND GENERATION
REFORMS
Administrative Changes
Simplification Of Procedures
Self Assessment Schemes
Organizational management.
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It can be seen in this graph that the highest decline in the revenue
collected through tariffs is between 1992 and 2006 which is being
compensated by increase in GST revenue.
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REFORMS IN DIRECT TAXES
Historically, direct taxes have remained in force in
Pakistan in the form of income tax, wealth tax.
The wealth tax was later on abolished by the
government.
However major reforms have been made in income
taxes.
Income tax is levied on the total income of a person from
all sources including:Salaries
Interest on securities
House property
Business, professional or vocation, capital gains
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INCOME TAX LAW IN PAKISTAN
Evolution and Development
INCOME TAX ACT, 1922
INCOME TAX ORDINANCE, 1979
PRESUMPTIVE TAX REGIME,1991
INCOME TAX ORDINANCE, 2001
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INCOME TAX ACT, 1922
When Pakistan came into being, the Government of Pakistanpromulgated the Income Tax Act, 1922.
A Taxation Inquiry Committee", was introduced in 1958.
Some of the recommendations were accommodated which
resulted in the amendment of Income Tax Act, 1922.
In 1961, FBR introduced an "Income Tax Committee".
Main purpose of introduction of such committee was to make
recommendations for simplification of the Income Tax Act,
1922.
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INCOME TAX ORDINANCE, 1979
IMPACT
The introduction of tax concessions for promoting preferred
economic activities through granting of investment and tax
credits, rebates, particularly during 1970s and 1980s.
However, led to the use of several of the instruments as tax
shelters ' by dishonest taxpayers.
Consequently, fairness, and 'equity' aspects of the
taxation system were gradually diluted in the
process of reconciling diverse, multiple economic
objectives.
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PRESUMPTIVE TAX REGIME
IMPACT
It prescribed a transaction based tax regardless of the fact that
the person executing the transaction had earned any income or
not.
Though the objectives were initially achieved but the methodchanged the overall nature of the tax.
The taxpayers begun to shift forward the tax (incidence
being known in advance) onto the customers.
No doubt it increased the revenue collection considerably but
it also transformed a direct tax into an indirect tax.
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INCOME TAX ORDINANCE, 2001
Income Tax Ordinance, 2001 promulgated to reflects the
policies of the government.
The policy is:
1. To facilitate the businesses
2. Broadening the tax base
3. Reduction in tax rates
4. Reduction in exemption5. Reposition of confidence in taxpayers
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At present, the income tax law can broadly be classified intotwo categories viz.
Income Tax Ordinance, 2001 and
Income Tax Act, 1997 (taxation of agricultural income).
The presently applicable system of regulating the income
tax, is fully in line with the concept provided for in
OECD.
(Organization for Economic Co-operation and
Development)
INCOME TAX ORDINANCE, 2001
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The government feels that the results achieved through
implementation of this system of taxation are encouraging.
It is evident from the fact that the tax collection has
increased from Rs 330 billion in the year 2000 to Rs 1,005
billion in year 2008 (direct taxes 82 billion to over 400
billion).
IMPACT
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RECOMMENDATIONS
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Reforms in indirect taxes
In Pakistan
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Introduction
Forms of Indirecttaxes
Sales tax
Excise/custom
duty tax
General sales
tax
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REFORMS IN SALES TAX
Evolution and development
Sales Tax Act was introduced in the federal
legislature on the 30th day of March 1951 to
give effect to the recommendations of the
committee.
Sales Tax could not be charged on
importation and exportation of commodities
but on only consumption, this was furtherimproved by the presidential order.
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REFORMS IN SALES TAX
Evolution and development
The presidential order, Taxation of Sales and
Purchase Order, 1960, on according to which the
power to impose taxes on the sales, purchases,
consumption, importation, exportation, manufactureand production of goods was granted.
Under the existing constitutional framework, the
Federal government can impose taxes on the sales
and purchases of goods imported, exported,
produced, manufactured or consumed.
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Proposed General sales tax system (RGST
Reformed General Sales Tax)
The primary purposes underlying the
introduction of the new GST was to neutralize
the revenue loss that would arise from the
reduction in import duties as a result of the
tariff reforms.
Standard rate of 15% has been proposed will
apply on both at import and local supplystages.
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Reforms In Custom Duties
These procedures were devised at a time when
the volume of international trade and the
number of import and export transactions were
small and import tariffs were prohibitively
high.
In the existing constitutional framework, the
Federal government can impose taxes on theimported and exported goods.
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IMPACT OF TAX REFORMS IN
PAKISTAN
Tax reforms increases
economic efficiency
Tax reforms eliminatedTax evasion: a rich mans
crime.
Tax reforms help inexpanding the tax base
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CHALLENGES / CONSTRAINTS TO
TAX REFORMS
.
Inconsistency of
policies
Lack of political
leadership to address
the issue of low
Tax/GDP Ratio in
relation to comparable
economies.
Absence of proper Tax
Culture.
Narrow tax base e.g.
nearly 80% of all
indirect taxes originate
from only eighteen
commodities
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RECOMMENDATIONS
Implementing a broad-based modern form of
tax system.
To establish a fair and efficient tax system.
Tobroaden the tax base and rationalize the tax
rate. To exclude tax evasions.
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RECOMMENDATIONS
To improve the effectiveness of tax collection
process, reducing the tax payer and tax
collector gap.
Establishment of proper system of audit.
Need to shift from manual system of
operations to the fully automated.
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CONCLUSION
Taxation is the government's source of
revenue. An efficient tax system should raise
enough revenue to finance essential
expenditures of the government.
Pakistan has to increase its tax sources in order
to generate enough revenue.
Tax administration should also be made
stronger to promote effective tax culture.
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RECOMMENDATIONS
Broaden the tax base
Rationalize the tax rate
Exclude tax evasions
Provide taxpayer services
Automated and
information based system