Tax Structure of Pakistan

TAXATION SYSTEM
IN PAKISTAN
PRESENTED BY:
SABA RIAZ
SIDRA IQBAL
CONTENTS
•What is Tax?
•Pakistan Taxation Structure.
•Governing/ Regulatory Authorities.
•Ordinance, Rules and Acts.
•Tax To GDP Ratio.
•Tax Year 2022-2023
•Issues in Tax structure of Pakistan.
•Impact on economy.
•Remedies.
WHAT IS TAX?
•A compulsory contribution to state revenue , levied by the
government on worker’s income and business profits, or
added to the cost of some goods, service and transactions.
•An amount that the government requires people to pay

according to their income, value of their property, etc.
•Prime objective of taxes is revenue generation.

PAKISTAN’S TAXATION STRUCTURE
GOVERNING /REGULARITY AUTHORITIES
•Parliament
•In Pakistan, a tax can be levied only by, or under, the authority of an Act of Parliament.
•Federal Board of Revenue (FBR)
••Income Tax (at National level)
••Sales Tax (at Federal level)
••Capital Value Tax (at Federal level)
••Federal Excise Duties (at Federal level)
Sales Tax on services and many other taxes are provincial subject
and imposed and regulated through the following authorities
•Punjab Revenue Authority
•Khyber Pakhtunkhwa Revenue Authority
•Balochistan Revenue Authority
•Sindh Revenue Board
Income Tax
Income Tax Ordinance, 2001;
•Income Tax rules, 2002;
•Income Tax Notifications (SRO’s issued by the federal Government);
•Income Tax Circulars (Clarification issued by the Federal Board Of Revenue)
Sales Tax
ORDINANC •Sales Tax Act, 1990;
•Sales Tax Rule, 2006;
E, RULES •Sales Tax Notifications (SRO’s issued by the federal Government);
•Sales Tax Circulars (Clarification issued by the Federal Board Of Revenue)
AND ACTS Federal Excise Duty
•Federal Excise Act, 2005;
•Federal Excise Rules, 2005;
•Federal Excise Notifications (SRO’s issued by the federal Government);
•Federal Excise Circulars (Clarification issued by the Federal Board Of
Revenue)
Custom Duty
•The Customs Act 1969
•Pakistan's tax to GDP ratio in comparison to the
other regional countries and also in comparison to
the average for the world as a whole, middle
income countries and high income countries.
Comparison shows that Pakistan's tax to GDP ratio
is lowest in comparison to the regional countries
TAX TO
GDP RATIO
FOR THE
TAX YEAR
2022-2023
The collection grew by 17.4 percent as
Rs.509 billion additional amount has
been collected as compared to
corresponding period PFY.
DIRECT TAXES
•Direct taxes have contributed around •Increasing share of direct taxes is a

45% to the total tax collected during welcome shift that confirms to the
H1:2022-23. The share of Direct taxes principle of progressive taxation. The
has considerably increased in the burden of taxes is being rationalizes
overall tax collection from 35% in H1: accordingly to capacity of the
FY 2022 to 44.5% in H1: FY 2023. taxpayers.
INCOME
TAX
•The WHT collection during
H1 FY2023 has been Rs.
914.4 billion against Rs.
680.9 billion during H1 PFY,
indicating a growth of 34.3%
COLLECTION OF SALES
TAX
•During First Half (H1) 2022-

23, sales tax remained
second top revenue
generating sources of
federal tax receipts. It
constitutes around 37.1% of
the total net revenue
collection.
CUSTOM DUTIES
•The overall net collection of Sales Tax Domestic (STD) was Rs. 466.9 billion
in the H1:CFY against Rs. 477.1 billion collected in the H1: PFY.
• Major contributing commodities are petroleum products, electrical energy,
textile sector, natural gas, sugar, food products, cigarettes, cement, aerated
water/beverage, iron & steel products
MAJOR
REVENUE
SPINNERS
OF CUSTOM
DUTIES
•During H1 (2022-23), the FED collection has been
Rs. 164.3 billion which is 12.3% higher than the
FEDERAL collection of Rs.146.3 billion collected during
EXCISE H1:PFY
•Major contributors in FED collection are
DUTY cigarettes, cement, concentrates, motor cars and
air travel. The combined share of these five items is
around 77% in FED revenue
MAJOR
REVENUE
SPINNERS
OF FEDERAL
EXCISE
DUTY
Pakistan’s Tax system is characterized by number of
structural problems.
•Low Tax to GDP ratio.
ISSUES IN •There is over dependence on indirect taxes, 80%
TAX share in revenue.
STRUCTUR •Within Indirect taxes there is domination of taxes
on international trade which promoted inefficiency,
E OF distorted the allocation of resources and encourage
illicit trade.
PAKISTAN •The effective tax bases of most taxes is narrow
due to wide ranging exemptions and rampant tax
evasion.
•Tax administration is characterized by primitive
and outdated procedures, complex laws. The
common perception is high level of corruption and
inefficiency.
AGRICULTURE
TAX EVASION
•Agriculture contributes
20% in GDP but there is
no income tax on it.
•Rich landlord pay no
taxes, they manipulate
the situation easier and
show every kind of
income to be gained from
agriculture sector and do
not pay tax on it.
•There is a huge portion of economy which is
undocumented.
INFORMAL •50% of economy is undocumented that means
ECONOMY there is business activity of more than 100 billion
dollars and yet it does not pay tax.
IMPACT ON ECONOMY
•Fiscal Deficit •Low Public •Slow Economic •Unemployment •Poverty •Inflation

Spending Growth
•Poor Education
and Health
A
COUNTRY’S •Clarity of law and communicable simplicity of
TAX SYSTEM procedure.
CAN BE •Stability in institution building and continuity of
policies for promoting tax culture, in accordance
SUCCESSFUL with the stage of development of a society.
ONLY IF IT •Specialized and professional top management
HAS equipped with practical experience in tax field.
•Enforcement of law in letter and spirit.
•Provision of incentives to the tax payers with
some direct social and material advantages.
•Autonomy of FBR
•Provincial Revenue Authority
•Special Tax Evasion Courts
SUGGESTIO •Strict Penalties on Tax Evasion

•Massive campaigning for tax registration
NS/ •Revision of Income Tax Ordinance 2001
REMEDIES •Complete cooperation by all departments
•Civic Responsibility
•E- filling System
•Tax Knowledge
•Effective Tax Culture
Various regulatory authorities SECP, NADRA, FBR, SBP,
PTA and other government bodies should share their data.
If a person has a bank account, FBR should have real time
information on amount, transaction associated with it.
If a person have multiple properties to his name FBR should
know about his wealth.
•Broadening the tax base by just 1% could lead to an additional Rs. 50 billion in
revenue, according to a study by the Pakistan Institute of Development
Economics. A flat tax rate of 15% could result in a tax revenue increase of up to
0.9% of GDP in Pakistan.
•One-percentage-point reduction in tax rates can lead to a 0.3% increase in GDP

in the short run and a 0.6% increase in the long run, according to a study by the
International Monetary Fund (IMF).
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TAXATION SYSTEM

•An amount that the government requires people to pay

•Prime objective of taxes is revenue generation.

•Direct taxes have contributed around •Increasing share of direct taxes is a

•During First Half (H1) 2022-

•Fiscal Deficit •Low Public •Slow Economic •Unemployment •Poverty •Inflation

SUGGESTIO •Strict Penalties on Tax Evasion

•One-percentage-point reduction in tax rates can lead to a 0.3% increase in GDP

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