The government of Pakistan has announced a tax scheme that will benefit the super-rich further weakening the already crippled economy.
According to the financial experts, the reduced tax rates will put a dent of Rs 90 billion to the national exchequer. Apart from that, around 521,000 taxpayers will also slide off from the tax net as per FBR’s analysis. According to the new policy, both salaried and non-salaried individuals will pay a maximum of 15% income tax as compared to the maximum 35% they used to pay before this policy.
The limit for exemption from income tax has been raised to Rs 1.2 million per year, up from Rs 400,000. Many experts are deeming the move as a pre-poll rigging attempt by the government to gather more votes in the upcoming national elections.
Many see the tax cuts as a win for the public, however, the national exchequer seems to be losing a significant chunk of money.
Pakistan’s Tax Net
The government has taken several initiatives to broaden the tax base of Pakistan. These include tax amnesty schemes, doubling the salaries of taxpayers etc. However, these schemes have failed to yield considerable results as Pakistan still has the lowest number of active taxpayers per tax administrator in South Asia. To draw a comparison, take a look at Pakistan’s and some other countries’ numbers;
Pakistan: 64 active taxpayers per tax administrator.
Switzerland: 3,182 active taxpayers per tax administrator.
The United States of America: 1,990 active taxpayers per tax administrator.
India: 537 active taxpayers per tax administrator.
Sri Lanka: 232 active taxpayers per tax administrator.
Pakistan also has one of the lowest taxpaying individuals ratios in terms of total population in the world. Here is how it stands;
- 0.4% of the total population of Pakistan pays taxes.
- 4.7% of the total population of India pays taxes.
- 58% of the total population of France pays taxes.
- 80% of the total population of Canada pays taxes.
Pakistan relies mostly on withholding taxes, which are treated internationally as indirect taxes. Withholding taxes in Pakistan make up 68% of the total income taxes. Currently the direct to total taxes ratio stands at 38% as compared to the 70% ratio in most OCED countries. Experts are projecting that Pakistan’s direct tax ratios will shrink down to a low 13% once the withholding tax is treated as an indirect tax. A tax official added;
The outcome of the economic package will bring down the overall ratio further.
You can read in detail about the revised income tax regulations and payable taxes here.