03-31-2010, 01:59 PM
Hi
I know that this topic is a few weeks old now but I thought, I might as well leave my views on here.
WHT and ALL Indirect taxes are presumptive and indiscriminate. Even the CBR/FBR admit as much so on their own website. Whereas Direct taxation can be specific, Indirect taxation applies across the board and does not make any allowances for whether the payer is in High Income bracket or low income bracket. In the UK and USA, indirect taxes are considered to be stealth taxes and are hugely unpopular. Nevertheless, even indirect taxes are in a loose form targeted at high income group. For example, no VAT is applicable on any children's items, books, food etc.
In Pakistan, indirect taxation accounts for the highest bracket of the exchequer revenue, over 41% of all Treasury income is from WHT. I appreciate that as far as the tax regime is concerned with regards to Income Tax and to an extent WHT, there are measures in place to differentiate between low income earners and high net worth individuals. However, despite such measures being in place, the system is still unfair as it puts the burden on the poor and in most cases illiterate people to claim or offset the WHT they have paid at source in their annual tax returns. on simple basic principle level it begs the question that how and why would a poor illiterate individual is going to file a tax return to offset the WHT already paid at source. Also, how many of the population actually knows about this facility. Furthermore, in the handful of cases where adjustments are allowed to be made against WHT already paid at source, how many of the really poor are in position to utilise the adjustments in their tax returns? Lets say a poor man spends 100PKR a month on his prepaid mobile phone card. Most shops do not offer a tax receipt for him to keep in order for him to be able to use it on his tax return. How is he supposed to prove what he has spent on his prepaid cards. Similarly, the adjustments that can be made against loans to purchase new property etc., is a benefit for all across the board, but how many in the lowest income bracket are actually able to obtain loans/mortgages to purchase their own property. The middle class and the rich certainly can go to the big banks and with the new financial revolution get a mortgage, but the poor do not really have such option available to them. yes I know that Microfinance banks are cropping up all over the place but they still only reach a small minority of the population.
Now I can fully understand why the % revenue from indirect taxation is so high in Pakistan. It is the governments way of ensuring that revenue is collected in some form. In most countries Income Tax is the major contributor towards the exchequer coffers. However, in Pakistan just over half a percent of the population pay direct income tax. That equates to just over a million tax payers out of a population probably in excess of 170 million!
The fault lies to an extent with the government who is penalising the masses for the crookedness of the rich (their own ruling class), where the rich get away with paying very little or in many cases nothing but the poor pay majority of the taxes through indirect taxation. I seem to recall that just a few years ago, even our enlightened and born again, reformed islamist/pakistani such as Imran Khan filed a tax return showing that his income for the year was around 2000 rupees!!! Now that is creative accounting!!! ;-)
Instead of penalising the poor by indirect taxation what the ruling class, regardless of what political affiliation they are, need to concentrate on taxing the rich who can afford to pay taxes via Direct taxation.
I apologise for the long ramble, but I just wanted to express my views. I could go on, but think it is wise to stop now.
I know that this topic is a few weeks old now but I thought, I might as well leave my views on here.
WHT and ALL Indirect taxes are presumptive and indiscriminate. Even the CBR/FBR admit as much so on their own website. Whereas Direct taxation can be specific, Indirect taxation applies across the board and does not make any allowances for whether the payer is in High Income bracket or low income bracket. In the UK and USA, indirect taxes are considered to be stealth taxes and are hugely unpopular. Nevertheless, even indirect taxes are in a loose form targeted at high income group. For example, no VAT is applicable on any children's items, books, food etc.
In Pakistan, indirect taxation accounts for the highest bracket of the exchequer revenue, over 41% of all Treasury income is from WHT. I appreciate that as far as the tax regime is concerned with regards to Income Tax and to an extent WHT, there are measures in place to differentiate between low income earners and high net worth individuals. However, despite such measures being in place, the system is still unfair as it puts the burden on the poor and in most cases illiterate people to claim or offset the WHT they have paid at source in their annual tax returns. on simple basic principle level it begs the question that how and why would a poor illiterate individual is going to file a tax return to offset the WHT already paid at source. Also, how many of the population actually knows about this facility. Furthermore, in the handful of cases where adjustments are allowed to be made against WHT already paid at source, how many of the really poor are in position to utilise the adjustments in their tax returns? Lets say a poor man spends 100PKR a month on his prepaid mobile phone card. Most shops do not offer a tax receipt for him to keep in order for him to be able to use it on his tax return. How is he supposed to prove what he has spent on his prepaid cards. Similarly, the adjustments that can be made against loans to purchase new property etc., is a benefit for all across the board, but how many in the lowest income bracket are actually able to obtain loans/mortgages to purchase their own property. The middle class and the rich certainly can go to the big banks and with the new financial revolution get a mortgage, but the poor do not really have such option available to them. yes I know that Microfinance banks are cropping up all over the place but they still only reach a small minority of the population.
Now I can fully understand why the % revenue from indirect taxation is so high in Pakistan. It is the governments way of ensuring that revenue is collected in some form. In most countries Income Tax is the major contributor towards the exchequer coffers. However, in Pakistan just over half a percent of the population pay direct income tax. That equates to just over a million tax payers out of a population probably in excess of 170 million!
The fault lies to an extent with the government who is penalising the masses for the crookedness of the rich (their own ruling class), where the rich get away with paying very little or in many cases nothing but the poor pay majority of the taxes through indirect taxation. I seem to recall that just a few years ago, even our enlightened and born again, reformed islamist/pakistani such as Imran Khan filed a tax return showing that his income for the year was around 2000 rupees!!! Now that is creative accounting!!! ;-)
Instead of penalising the poor by indirect taxation what the ruling class, regardless of what political affiliation they are, need to concentrate on taxing the rich who can afford to pay taxes via Direct taxation.
I apologise for the long ramble, but I just wanted to express my views. I could go on, but think it is wise to stop now.