Tax System of Pakistan

 It is obvious that no state can function smoothly without revenue, and that revenue generates through tax system.

Yes, if a country has a monarchy and they have lot sources like Saudi Arabia, then they can give tax exemptions in their state. The running costs of the public sector come from government revenue. This income depends on different types of taxes. Broadly there are two ways to collect Tax revenue and those are direct or indirect taxes. Sales tax which is a tax on purchases is an example of indirect tax.

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If a common person is purchasing anything from smallest to largest, indirect tax is already included in that particular purchase.

Looking back to history, taxation has a long history. Ancient Greece and Rome taxed the sale of imported goods. Julius Caesar, King of Rome, was the first ruler to impose a sales tax. At that time, taxes were applied on the purchase and sale of goods and cattle without any method. Britain introduced personal income tax for the first time in 1798 to cover the cost of wars. Thus, the United States imposed taxes in the country in 1861 during the ongoing American Civil War.

The main purpose of taxation is to increase government revenue. So that facilities can be provided from this income. In addition, the purpose of applying taxes is to determine which goods are allowed to enter the country or which goods are prohibited or to prevent to purchase.

Different types of taxes and their percentages/rates also vary from country to country and even different regions of a country have different rates.

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Taxes can be divided into three categories or groups.  Income tax: This includes personal income tax, corporate tax, payroll tax, and capital gains tax. Tax on purchases: This includes sales tax, gross receipts tax, value added tax and excise tax. Tax on property/property: This includes property tax, tangible property tax and inheritance tax.

 Sales tax implemented as following rate in Japan 55.97%, Denmark 55.9%, Austria 55%, and Sweden 52%.

Direct taxes are generally considered to be a fair and progressive method of raising national income, which play an important role in balancing distribution and reducing inequality gaps. But such methods of wealth distribution are rarely used in Pakistan. Indirect taxes in Pakistan contribute 60% of the country's tax revenue. This is a tax which imposed on purchases made by the general public. Such a huge margin but even after that the state of Pakistan is in bad economic situation which is worsening day by day.

Why this is happening?

The Federal Board of Revenue (FBR) is responsible for tax collection in Pakistan. Its tax system is weak, old, obsolete and British-era. Second, the distribution of resources is not balanced. As compared to progressive role of Taxes, even they are regressive.

Instead of making improvements in tax collection, the government increases the tax rate. This increases tax dodging which is very dangerous to economy of Pakistan.

This is the reason that the tax is not collected properly and if collected is not used properly.

What to do?

It is appreciable that previous Government of Imran Khan made improvements in tax collection but that is not enough. All indirect taxes should be abolished. Because a common man does not even know how much tax he is paying. And secondly, the payment of any thoughtful amount should not be made in cash that should be through banks.