January 10, 2024
Taxation has always played an important role in the working of governments, whether a monarchy or democracy. Even during ancient times, governments have always relied on taxes. This is because it is the primary and only source of their revenue.
Yes, a government is at a great advantage financially if it wins a war. Unfortunately, that alone would not be sufficient to sustain the workings of government as that money would eventually run out. Citizens pay their taxes to their representatives in the government, whom they elect. In return, the elected leaders or their representatives offer services to improve the citizens’ lives.
If disruption is on either side, the whole system can crumble. The country may go bankrupt or even plunge into a civil war.
Just like every other government, the government of Pakistan introduced Taxation. It worked day and night to implement it so that very little to no tax evasion happened. The government continues to manage annual budgets.
Taxation has played a crucial role throughout Pakistan’s history in the country’s survival. Especially in the economic golden age during the 60s and 80s. Every government uses the revenue generated through Taxation in the construction of public hospitals, schools, transport facilities, defense, etc.
Taxation in Pakistan
Likewise, the government constructs and the citizens fund all the buildings, such as banks, hospitals, schools, universities, and railway and bus stations. There is a lot more that is dependent on people and their taxes, including:
- Improvement of the country’s defense system,
- Addition of armaments, and
- Payment of salaries of government employees, including the president and the prime minister
A country’s survival is barely possible, or it may crumble onto the ground economically due to continuous flaws or inconsistencies in a country’s tax system. There’s much more about the taxation system of Pakistan and its role in the country’s survival that we aim to inform you about. You can scroll down to learn more about it.
Taxation is the basic pillar in the foundation of almost every country’s government. Even though there is a lot of tax evasion and avoidance, the government still manages to generate sufficient taxes from its citizens to operate.
Today, Pakistan’s economy is largely dependent on its tax system, which is why Pakistan has still managed to survive despite several internal political and financial turmoils. In this article, we will introduce you to the tax system of Pakistan and its common types. We will also discuss how it influences the shaping of the country and makes it able to survive.
We’ll also talk about the important sources of Taxation and the industries that contribute to it. Plus, you will get to know major flaws in Pakistan’s tax system and its causes, among which tax evasion is the most prominent. Let’s get to the topic.
What is Taxation?
Taxation is the process in which compulsory levies are liable on individuals or their businesses by their federal government or, in some cases, provincial governments.
The tax system is present in almost every country and by every government, whether it be a dictatorship, monarchy, or democracy. It helps generate government revenue, which can be useful for several other purposes.
Some Important Types of Taxation
There are many types of Taxation. Each of them plays a huge role in maintaining the country’s economy. However, we have chosen a few most important and common types of taxes and explained them below for you:
- Corporate Tax
Corporate tax is a small percentage of the corporate tax that the government obliges you to pay. Revenue generated through the corporate tax is useful in funding federal programs.
- Property Tax
Property tax is the amount of tax applicable to an individual who owns immovable properties such as plots, apartments, land, and farms. It is dependent on the value of the land or other property assets.
- Estate Tax
The estate tax applies to a person’s estate at the time of death. It depends on the property’s fair market value in a person’s estate. The estate tax only applies if the property exceeds the federal government’s threshold.
- Sales Tax
Sales tax is the tax levied on the sale of services and goods. It differs according to the type of services or goods sold in each province. It also varies by jurisdiction.
- Payroll Tax
Payroll tax is the tax deducted from the pay of an employee by the employer on behalf of the federal government at the initial stage. This tax is later utilized to provide employers with free medical and social security programs.
A tariff is a tax imposed by the federal government on imported goods. It is usually high and helps support and strengthen domestic products and businesses.
- Income Tax
Income tax is the tax that is liable to business owners who generate sufficient income by different means.
What are the major objectives of Taxation?
There are a few major objectives of Taxation, among which economic development falls as number one. Taxation is the primary source of government revenue and the backbone of a country. Without it, a country may not even exist, let alone its economy.
Another one of its objectives is to introduce full employment. When there is a proper tax system, the employment rate of a country rises. Price stability is yet another one of its objectives. Taxation has been effective in controlling inflation.
When direct taxes are raised, private spending is controlled, which reduces the pressure on the commodity market. Lastly, the non-revenue objective of Taxation stands for a reduction in the inequalities of wealth and income.
This is done by making the rich people pay more taxes and the middle-class people, or the ones who even live below the poverty line, pay fewer taxes by introducing a progressive tax system.
The Role of Taxation in Pakistan’s Survival
Pakistan’s tax system is one of the main reasons the country has continued to survive despite many internal political and economic problems. Pakistan would be decades behind where it is now without a stable taxation system. The tax system’s contribution to generating the federal government’s revenue is very important.
Without a proper tax system, Pakistan’s defense system would be weaker. Pakistan was able to buy resources to make itself a nuclear-armed state to ensure its defense and bring power stability to the subcontinent. Thanks to its tax system! Otherwise, Pakistan could be one of those countries that could easily be attacked and taken over in case of rising tensions.
Its tax system also contributed to the building of a large number of public schools and hospitals. This provided its citizens with affordable and proper healthcare and education. You will notice appreciable infrastructure, the availability of public transport, and many other establishments in metropolitan cities such as Lahore or Islamabad. All these facilities would not have come into existence without a tax system.
There are still many flaws in its tax system. But if the tax system were non-existent, the country would be underdeveloped now or on the brink of collapse.
The Significant Flaws in Pakistan’s Taxation System
The most significant flaw in the tax system of Pakistan is the lack of education. Despite the world’s leap towards a high literacy rate, a large population of Pakistan remains uneducated, especially those living in rural areas. Lack of education is the cause of many root problems, among which tax evasion is the most common.
Today, many people try to evade taxes by declaring false information to the authorities. They report their income or revenue lower than it is so that less tax is applicable. Some don’t even consider reporting at all. According to a report, many Pakistani citizens try their best to evade taxes. Generally, people can go to jail for tax evasion since it is illegal, but this is not what happens in Pakistan.
Hence, the underpayment of taxes and low government revenue. This is probably one of the reasons the country hasn’t developed much compared to its neighbors, such as India and China.
As we have clearly explained all the basics about the tax system of Pakistan, its working, and its role in the country’s survival. We hope you grasped our concept and what we have tried to deliver.
Being a responsible and educated citizen of your country, you should consider all the possible negative effects of tax evasion and the destruction it can bring to your country’s economy.
Therefore, you should not only restrain yourself from tax evasion but also educate your friends and family about it. It’s your responsibility to play your part in improving your country, both morally and financially.
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.