Ayesha Saba

In Pakistan, the burden of indirect taxes is increasingly falling on the shoulders of the most vulnerable segments of society, exacerbating their economic strain and widening the gap between the rich and the poor. “Rising indirect taxes are placing an undue burden on the vulnerable segments, including the lower-income groups and those living below the poverty line,” noted Majid Shabbir, adviser on gender-inclusive policy to Islamabad Chamber of Commerce and Industry (ICCI). Talking to WealthPK, he said, “The escalation in indirect taxes, coupled with inflationary pressures and stagnant wage growth, intensifies the prevalence of poverty. As essential commodity prices surge and incomes remain stagnant, numerous households find themselves ensnared in a cycle of deprivation and financial hardship.” “The issue is further compounded by the lack of progress in essential sectors such as healthcare and education. Without significant improvements in these areas, it becomes increasingly difficult to justify raising taxes.

A transparent tax system is essential to encourage compliance, but it must be accompanied by tangible improvements in basic facilities like healthcare and education,” Shabbir said. Drawing a comparison with countries like Dubai, where there is no income tax and businesses are incentivised, he highlighted the disparity in approaches to taxation and economic development in Pakistan, which should consider similar incentives to attract investment and stimulate economic activity. Meanwhile, speaking to WealthPK, Zulfiqar Ali Shaikh, Director General of Media Communication and Outreach Wing at Benazir Income Support Programme (BISP), said, “Taxation plays a pivotal role in the development and functioning of any country. The revenue generated from taxes forms the backbone of government finances, funding essential services and infrastructure. It's imperative to expand the tax base by bringing untaxed sectors into the tax net, thereby alleviating economic strain on some sectors and fostering growth.”

He said public sector employees, who mostly comprised lower-middle class, were heavily taxed, and thus should be given relief through tax rebates. He highlighted that the past few years had witnessed a surge in global interest rates and a decline in job opportunities, exacerbated by the paradigm shift brought on by the Covid-19 pandemic. “Many businesses have shrunk or shut down entirely, leading to widespread joblessness and economic instability. This dire situation underscores the urgent need for comprehensive measures to address poverty and unemployment.” He opined that industrialisation, a cornerstone of economic development, remains largely underdeveloped in Pakistan. “The agriculture sector, once the backbone of the economy, is facing a decline due to water management issues and a lack of modernisation.” “The foremost priority for the government should be to enhance its exports through industrial development. Some industrial segments evade taxes, so government should bring these, along with the agricultural income, into the tax net to improve its finances.

Additionally, investments in water management and modernisation of the agriculture sector are imperative to unlock its full potential and combat rural poverty effectively,” Zulfiqar stressed. The BISP official suggested that to alleviate the burden borne by some sectors due to indirect taxation, it's essential to rationalise, broaden and streamline taxation policies, ensuring fairness and transparency in the tax system. The Federal Board of Revenue has reported a significant increase in tax collection during the first seven months of the ongoing fiscal year 2023-24. Its tax collections amounted to Rs5,150 billion from July 2023 to January 2024 against collections of Rs3,973 billion over the same period of the last fiscal year, depicting a 30% growth. According to the data released by the Ministry of Finance, tax refunds surged by over 28% during this period. Domestic taxes witnessed a substantial growth of approximately 40%, whereas import duty and associated taxes increased 16%.

INPCredit: INP-WealthPk