Raza Khan

Experts have suggested the government focus on direct taxes instead of raising the ratio of indirect taxes and increasing the prices of utilities. “Raising the ratio of General Sales Tax (GST) from 17% to 18% will increase the inflation that would badly affect the common people,” Dr Ashfaque Hasan, Dean of NUST Business School, National University of Sciences and Technology (NUST), told WealthPK.

He said that Pakistan’s economic situation is not good, and the government has to increase the revenue through taxation and by other means to get back the IMF programme. “Rich people should be taxed directly while protecting the poor segments,” Dr Ashfaque said, adding that the ordinary people are already under tremendous financial stress.

Dr Ashfaque said that due to bad economic situation of the country and few external factors, inflation has touched unprecedented levels in Pakistan. “Consumer Price Index (CPI) inflation increased to 27.6% on year-on-year (YoY) basis in January 2023. This is the highest inflation reading since May 1975,” he mentioned.

Besides raising GST ratio from 17% to 18% in supplementary finance bill, he said, the government was also increasing the prices of electricity and gas. “These measures will enhance tax and revenue collection, but would create economic chaos for most of the population,” Dr Ashfaque maintained.

He suggested raising the ratio of direct taxes in total revenue collection from 39% to 50%. He also favoured the super tax imposed on large-scale industries. Baddie Sahukat, Economic Consultant at Sustainable Development Policy Institute (SDPI), told WealthPK that direct taxes are considered as a fair and equitable way of raising revenue for the governments.

“Direct taxes make the system progressive through balancing the income distribution and narrowing the inequality gap,” he elaborated. Baddie said that direct taxes are not focused on in Pakistan in recent years, which caused a massive gap in direct and indirect taxes in overall revenue collection.

“The government should focus on tax reforms aimed at increasing tax base rather than imposing taxes on existing taxpayers and increasing GST,” he suggested. He added that every citizen in Pakistan has to pay GST whether he is rich or poor. “Given the large tax gap, the government should take measures to bring untapped sources into tax net without putting burden on low-income class,” he added.

He was of the view that the recent increase of 1% in GST and increase in gas prices would affect the buying power of the people, and reduce their savings. “The supplementary budget is aimed to collect additional revenue of Rs170 billion, while the government can get much more by imposing direct taxes on the rich and high earning industrial sectors,” he maintained.

According to the Federal Board of Revenue (FBR), revenue collection figures for the last fiscal year (2021-22) were recorded at Rs6.125 trillion. The proportion of indirect taxes remained over 60% of the total revenue collection during the last fiscal year.

Credit: Independent News Pakistan-WealthPk