Has the country finally embraced a progressive tax regime? By Ahatsam Ahmad
T
he government needs money. All governments everywhere always need money, but for Pakistan right now shoring up revenues is a vital part of getting out of the eye of the storm we find ourselves in. And for that, the most indispensable part is revenue collection. The IMF is also breathing down the government’s neck, peering very closely at whether or not the fund’s recommendations on revenue collection are being followed to a T, with the disbursement of the bailout package on the line. So what changes has the government proposed in the finance bill? And more importantly, how do they line up with the expectations of the IMF? Additional revenue measures of around Rs 440 billion, out of which 70 percent pertain to direct taxation and the remaining 30 percent will be through sales tax and duties. These measures include taxing unproductive assets like real estate, tightening the minimum tax regime, introducing wealth taxes and additional super tax, direct and fixed
TAXATION
taxation for sectors like imports and retail while savings and investments in financial markets are also being taxed at an elevated rate to generate incremental revenue. There has also been a downward revision in salary tax rates and income slabs is a positive development for the working class, however it is contrary to what IMF demanded and the authorities might not be able to see this proposed amendment through. Relief for some sectors through sales tax exemption is provided but other sectors are on the receiving end of proposed amendments like reduction in input tax adjustments and increased sales tax rates. Profit investigates how these key amendments affect the broader narrative of tax regulation. Particularly with regards to docu-
mentations of the economy and streamlining procedures for ease of doing business.
Sales sax
B
efore diving into the details of the proposed amendments to the sales tax regime, let’s see an example to understand how the sales tax liability is calculated and what does the commonly used jargon actually mean. The calculation above is a simplified version of how sales tax liability is computed. The two main components are input and output taxes. Input, as the name suggests, is tax charged on purchases by suppliers/vendors while output tax is collected from the customers by the business.
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