Changing the taxation system

By Zaheera Ahmed

THE NEWS

4/4/2007

There is an urgent need to revamp and reorganise our more than hundred and eighty year old taxation laws. Our revenue generation system (taxation and tax collecting machinery and methods) have become most cumbersome and beyond the comprehension of even educated citizens, not to mention the ordinary small businessmen and working class. We must open a debate particularly among the young students of economics, finance and commerce in order to gain fresh ideas as to how best we can formulate and finalise implementation of a locally-devised taxation system. Here are some ideas to ponder and debate.

Our taxation system should reflect the federal structure of the state of Pakistan. It should be clearly and unambiguously divided according to the three tiers of the state; that is federal, provincial, and the local government system, so that at no level of governance should there arise any bickering and disharmony among the governing bodies about the funds collection and distribution.

Federal taxes: An income tax of Rs10,000 should be levied on every citizen earning Rs200,000 annually, or 10 per cent of the total income if earning more than Rs200,000. The federal government should also receive a tax of five per cent on every item exported/imported in and out of the country. The third, five per cent tax should be levied on all travels out of the country. Besides this, a five per cent tax on travel by rail should also be levied, since it is a federal subject. The lower rates of taxes without exemption not even on official travel will induce a sense of confidence and equality among the tax paying section of society. The continuity of the tax structure must be ensured to enable the taxpayers and entrepreneurs plan for the future with confidence for long-term schemes.

Provincial taxes: All large size production units should pay a tax of five per cent of the total value of production to the provincial governments of the area of their location. All the large trading units situated within the boundaries of their respective provinces should pay a five per cent tax to the provincial government for conducting inter-province business. This tax should only be levied on out going cargo to other provinces in order to avoid double taxation. The third provincial tax should be on all transports (except railways) plying on inter-provincial routes, this should also not be more than 5 per cent according to the seating capacity of the vehicles, plus another two per cent if the vehicle is air-conditioned.

Local government taxes: The local governments should collect taxes not more than five per cent from small manufacturing units operating within the district's limits. The second tax of the local governments of the district should receive a tax of not more than five per cent on all transport plying on the roads and streets within district limits. This will distribute the motor vehicle tax (NVT) the provincial and local governments automatically without any hassle and bickering over the MVT collection and distribution. The third tax the local government should collect is property tax on the basis of the covered area; this should include residential houses and shops. Every shop and house must be taxed according to the universal percentage of 5 per cent per square ft. There must not be any differentiation of domestic or commercial property, except on high class or lower class areas, which can be judged according to the rental value of property in different locations of towns and cities

The rules governing taxation must be based on universal percentage without any exception and exemptions. All the governments, local, provincial and federal should strictly adhere to the rule of universality and equality. This means that, all the local governments of the country and all the federating units or provinces should apply the same percentage, rates and categories. The minimum rates and equal percentage will ensure a corruption free system of taxation without any loopholes. Thus more and more people will be encouraged to pay their taxes.

The methodology of payment: this must be made direct and simple, as mentioned above, of the total number of taxes will come down to only nine, instead of 30 or 40. The taxpayers should be able to go to the nearest bank branch of his area of business or place of residence, should pick up the relevant form available at the counter, all round the year. Fill in the name address residential/work place, nature of his/her earning and amount of his/her total income, value of production or property and make the payment and receive a receipt with three copies. One he/she should retain for his/her own record, the other should be sent to the regional income tax/other offices and the third to the CBR offices in Islamabad. In return the taxpayers should promptly receive an NTN/PTN/DTN national, provincial and district taxes bearing cards to show the staff of the respective revenue department. On payment of vehicular taxes the payers should be issued a ticket or sticker to paste on the front and back of every vehicle, every year with a different colour, so that the traffic police can check whether tax has been paid for the current fiscal year. The revenue collecting agencies and the CBR should hire staff with relevant qualifications for accounting and checking the record of payments from the banks of their respective areas may that be federal, provincial or local government taxes.

The changes in the system will certainly be resisted, but let us start an open debate on creating a new system, which will be permanent, universal, and fair for all Pakistanis. The present leadership should show the mettle to bring the change, which will free the impoverished masses of the country from the burden of unjust taxation, and the effluent section of society will shoulder their responsibilities of revenue generation with a sense of being treated in a just and fair manner.