January 10, 2024
Taxation makes up most of the government’s revenue. Taxing the citizens helps run countries. There has always been a misinterpretation of taxation and taxation policies, especially among Pakistani citizens. Many Pakistani citizens do not care about paying taxes. They try their best to avoid it, giving the reason that it only benefits the government. They give the reason that it has no positive impact on the lives of common people or something similarly illogical. These facts are quite the opposite.
The government utilizes taxes that citizens pay in paying pensions and salaries to government employees. The government also uses it in the construction of the country’s infrastructure. Some common examples are public schools, hospitals, facilitating public transportation, etc. This makes the commoner’s basic needs much more affordable and brings economic uniformity to the country.
To prevent people from trying to avoid taxes and to bring economic uniformity and prosperity, the government of Pakistan, just like every other nation, introduced its taxation policies. It wasn’t done during a single government. Many governments came and introduced more reforms in the taxation policy of Pakistan. Pakistan’s taxation policies are complex and target every complexity revolving around the imposition of taxes.
It has laws clearly explaining how, why, and why individuals are liable to pay taxes and similar other questions. Citizens’ demands, needs, and occupations have changed with growing times. Therefore, to keep up with the normality, governments come into power. They introduce new bills and ordinances regarding taxation and taxation policies.
There are still some flaws and weak points in Pakistan’s taxation policies. This is why there are still considerable efforts against tax evasion and tax fraud in Pakistan. To make it all easier for you to understand, we’ll address these weak points and flaws and provide suggestions for improvement.
To make a tax system work, there needs to be a tax policy. A tax policy is responsible for the proper working of a tax system. It makes the citizens acknowledge their responsibilities in terms of tax payments. Tax policies are what let the citizens understand the fiscal liabilities they have.
Pakistan also adopted several tax policies throughout its history. These reforms are what we’ll talk about. In this article, we will explain what a tax policy is, its types, what makes a tax policy progressive, the importance and impact of tax policies on Pakistani citizens, the reforms introduced in Pakistan’s tax policies, and much more. Let’s get through the topic.
What is a Taxation Policy?
Taxation policy is a system where a government or a federal authority, is the government’s representative, levies taxes on the sale of goods and services. It is a system that allows the government to decide the type of taxes it should impose.
The federal government possesses the complete authority and rights to decide the amounts of these taxes and the group of citizens they want to impose specific taxes on, according to the financial condition of these citizens. Taxation policies involve both the macro and micro aspects of economics. The government holds the right to suspend taxation on specific products or services or raise the amount of these taxes at any given time.
A taxation policy consists of all these ordinances and comprehensive laws introduced by the governments. The government can reform taxation policies at any time according to the need of the hour.
Three Types of Taxation Policies
There are several types of tax policies. Some are in the interests of financially unstable people, some in the interest of the elites, and some in both. Tax policies are classified into three types. The first type is known as regressive. Regressive tax policies are tax policies that target the financially poor citizens of the country, already knowing how difficult it is for them to pay taxes and still don’t have any special policies for them. Regressive policies give relief to the elites.
The second type is the proportional type. This tax policy doesn’t care about whether a person is financially unstable or rich. It imposes the same taxes on the rich and the poor. However, this makes the poor even poorer while the rich people aren’t much affected.
The third type of tax policy, the progressive type, is considered the best. It focuses on the poor and middle class and imposes taxes on them according to their financial condition. The rich people are obliged to pay the most taxes in this policy. This policy brings economic stability and uniformity of wealth to a country.
Qualities of a Progressive Taxation Policy
Today, every developed nation has a progressive taxation policy. Progressive tax policies are why these developed nations, such as Canada, Germany, and Japan, are where they are, and their economies are stable.
Because of the adoption of progressive tax policies, these countries’ poverty and unemployment rates are very low compared to countries such as Iran, Pakistan, India, and Afghanistan. Progressive tax policies have laws that provide relief to the middle and poor classes of a country. Such policies make sure that there is equal distribution of wealth among all citizens.
Progressive tax policies have qualities that can easily be distinguished from regressive or proportional tax policies. These tax policies impose more taxes on the rich class but still not much to not burden them. In a society with a progressive tax policy, poor and middle-class citizens are relieved from paying taxes.
They are taxed less than the upper class. Progressive tax policies don’t force penalties on financially unstable citizens. Instead, these citizens are given time to pay their taxes; some are even exempted if they cannot pay their taxes.
Taxation Policy Assessment in Pakistan
The tax laws in Pakistan are clear, but many people are unaware, while others use their influence and money to shape the law according to them because the laws aren’t as strong.
Pakistan has a lot of intentional and unintentional tax evasion and tax fraud. There is a weak assessment of tax policies in Pakistan. Still, many officials do not care to assess individuals’ records and wealth statements.
According to the Sales Tax Act of 1990, any person who commits fraud is liable for imprisonment for up to five years.
According to section 182, any individual who willfully participates in tax evasion must pay a penalty of one thousand rupees or an amount equal to two hundred percent of the tax the individual sought to evade. However, despite dozens of similar tax laws, their application is still very low.
Reforms in the Taxation Policy of Pakistan
Throughout the country’s history, there have been many reforms in tax policies and tax laws. Many governments that came into power introduced new tax policies, either regressive, proportional or, in some cases, progressive. The reforms brought in by new governments have always focused on the economic stability of the country and lowering inflation.
These reforms have aimed for and brought an increase in GDP to tax ratio, a broadening of the tax base, an overall increase in the revenue collection, and the collection of optimum tax revenues. There is much more that the country can achieve through future tax reforms.
Possible Future Reforms in Pakistan’s Taxation Policy
Currently, as we speak, Pakistan maintains a proportional tax policy. All citizens of Pakistan are equally liable to pay their taxes regardless of their financial condition. The tax laws in Pakistan aren’t as strong. The penalties in case of tax fraud and tax evasion aren’t much enforced. Because of this, rich people continue to evade taxes because of their greed.
They use their influence and bribe some officials in the tax department to alter their records and to enter lower income. While poor people also avoid taxes, it is due to a lack of education and the inability to pay taxes. In our opinion, the government should introduce more strict tax laws to put everyone under the law.
Pakistan should adopt a progressive tax policy. The reason is the huge inequality of wealth in the country. Moreover, taxing the oligarchs can help the Pakistani citizens and the country’s economy.
In conclusion to everything that we have stated about the tax policies of Pakistan, and its assessment and reforms, we think it is now quite clear to you why there is no proper tax system in Pakistan and why there is a lot of tax evasion.
Given the three types of tax policies, Pakistan’s tax policies are regressive, or, we can say, proportional. Still, the government can work on it by introducing reforms to its tax policies and adapting progressive tax policies.
It would not only bring equality in wealth among its citizens but also lower the poverty rate and help the country get out of its tough economic times.
A highly skilled tax consultant specializing in Pakistan’s intricate tax laws and regulations. With over a decade of experience in the field, he has helped countless individuals and businesses navigate the complexities of taxation. His expertise lies in optimizing tax strategies, ensuring compliance, and maximizing returns for his clients. John’s in-depth knowledge of Pakistan’s tax system and dedication to staying up-to-date with ever-changing laws make him a reliable and sought-after advisor. Whether it’s tax planning, filing, or resolving tax-related issues, clients trust John’s proficiency and commitment to achieving financial success while remaining fully compliant with the law.