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Income
Tax
June 7
2011This document highlights some issues of why people dont pay taxes in a
Pakistan and as well as there are some problems and as well suggestions
or solutions are there.
Why people
dont pay
taxes in
Pakistan
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Submitted to: Prof: Umer Zaka
Section: E
Name of Group Members:
Rashid Azam L1S10MBAM2010
Rana Waqar Ahmad L1S10MBAM
Arslan Arshad L1S10MBAM
Momina Arif l1S10MBAM
Farah Waseem l1S10MBAM
Assignment No: 3 & Project
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WHY PEOPLE DONT PAY TAXES IN PAKISTAN?
Definition of Tax
A fee charged ("levied") by a government on a product, income, or activity.
If tax is levied directly on personal or corporate income, then it is a direct tax. If
tax is levied on the price of a good or service, then it is called an indirect tax.
Purpose ofTaxation
The purpose oftaxation is to finance government expenditure. One of the
most important uses of taxes is to finance public goods and services, such as
street lighting and street cleaning. Since public goods and services do not allow a
non-payer to be excluded, or allow exclusion by a consumer, there cannot be amarket in the good or service, and so they need to be provided by the
government or a quasi-government agency, which tend to finance themselves
largely through taxes.
TAX IN PAKISTAN:
Law concerning taxation of income in Pakistan is stated in the Income Tax
Ordinance, 2001 (the Ordinance) and the rules framed there under viz. Income
Tax Rules, 2002 (the Rules).
The Ordinance is a Central statute and is, therefore, applicable to the whole of
Pakistan .Under section 4 of the Ordinance, income tax is imposed for each tax
year at specified rates on every person who has taxable income for the year. The
tax payable is calculated by applying the rate(s) of tax to the taxable income of the
taxpayer for the year.
Tax Year in Pakistan
Tax year is a period of twelve months ending on 30th June and shall be
denoted by the calendar year in which the said date falls.
Taxable Income in PakistanIt is the total income of a person for a tax year reduced by the total of
any deductible allowances, under the Ordinance, for the year. A person is entitled
to a deductible allowance for the amount of any Zakat paid by the person in a tax
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year under the Zakat & Ushr Ordinance, 1980.
THE PROCESS OF TAXATION AND TAX-COLLECTION INPAKISTAN
In Pakistan, taxes are levied at three levels:
Federal Provincial local
At federal level, Central Board of Revenue (CBR) takes care of the revenue-
collection. At this level, there are four major taxes:
Income Customs Excise Sales Tax
At provincial level, various departments perform this task. Major taxes at this
level are: Stamp Duty, Motor Vehicle, Entertainment, and Electricity taxes. And, at
local level, entities of district government levy taxes.
High tax stat:
Pakistani state is such a high tax state. On the one hand, it is not providing
the least of the essential services to its citizens; that is, maintaining law and order,
and protecting life, liberty and property of its citizens. On the other, under the
slogan of Welfarism, it is resorting to high taxes and control over the lives of the
people, and thus it has to sustain an ever-increasing state-machinery.
Moreover, it has instituted monopolies, and likes to take care of their interests.
And, last but not least, it has gathered around a ring of rent-seekers in the shape
of politicians, privileged groups, civil and military bureaucrats, etc. who cause to
manipulate its policy of taxation to their own benefit or to the detriment of
others.
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Tax evasion and FBR:
Every year a budget is presented and goals set, which are never to be
realized. Tax evasion in Pakistan according to former Finance Minister Shaukat
Tarin is in the range ofRs798 billion annually.
The FBR in Pakistan is biggest facilitator of tax evasion, which is evident from the
fact that targets set for tax collection are never achieved, nor are the criminals
responsible for this crime against the state ever been punished, tax evasion is the
worst of all crimes that can be committed against a state.
According to FBR some seven hundred thousand tax thieves have been identified
and over 4,000 companies involved in obtaining fake refunds identified, yet the
FBR for some strange reasons wants to protect their identities.
While millions of poor suffer due lack of funds as a consequence of tax revenue
targets not being achieved, yet the criminals responsible for this crime within the
administration and business community are being protected. No nation can
survive, or function if its tax collection agency is riddled by massive corruption
and less than 40% of targeted tax revenues collected as is the case in
Pakistan. Hundreds of thousands of poor die of starvation and many of them
commit suicide, yet those responsible for tax evasion, a crime against the state,
are being facilitated by none other than the FBR and their political godfathers.
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POLITICAL VIEW AT TAXATION
Taxation has become a very sensitive political issue. Because of the
disappointment that had accumulated on the management (collection /
utilization) taxes, there arose a very serious moral movement impact, tax boycott.
If not treated quickly, the movement could be a wild ball which threatens the
legitimacy of governments, even the existence of the state itself. Taxes are the life
blood (life blood) countries. Taxes paid by the state erect; tax boycott collapsed
state.
RELIGIOUS VIEW AT TAXATION
According to Islamic jurisprudence, the definition of obligatory alms tax is
levied by the government over citizens. Called the dole because there is no direct
benefit (iwadl mubasyir) received by the payer. Mandatory in the sense ofenforceable public interest (mashalih ammah).
Given how absolute role for the existence of the state tax and welfare of people
(if managed correctly), Islamic super-serious attention through its main teachings
(pillars of Islam), namely zakat. Throughout the history of the country, the tax has
developed (evolved) through three concepts meaning.
First, taxes as a tribute (dharibah) to be paid by the people solely because they
are the servants who should serve the interests of the ruler as his master, ruler.
The king claimed to be incarnations of gods ruling the universe. At this stage, the
tax is defined as proof of loyalty to the people as servants in the palace to the
king's palace as a Look-so, to borrow a phrase of Java.
There are no moral rules or laws that govern how and to whom tax money should
be managed. Also, not yet known concept of corruption as a crime lord, or
officials of state finances. Tribute this era is the era of absolute kings of feudalism.
Second, conceived as compensation, tax (jizya) to the rulers of the people. This
concept came after the people of the taxpayer (tax payers) started to realize thatthe king / ruler is not a god who may treat people arbitrarily. Authorities are also
human beings who hold the power because the mandate of the people. Neither
taxpayers nor the ruler of the people the tax collectors are human beings who
more or less equivalent. So, if the authorities levy taxes, should no longer free.
Taxes must be balanced with service to the people who pay for it.
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Second, conceived as compensation, tax (jizya) to the rulers of the people. This
concept came after the people of the taxpayer (tax payers) started to realize that
the king / ruler is not a god who may treat people arbitrarily. Authorities are also
human beings who hold the power because the mandate of the people. Neither
taxpayers nor the ruler of the people the tax collectors are human beings whomore or less equivalent. So, if the authorities levy taxes, should no longer free.
Taxes must be balanced with service to the people who pay for it.
This second concept is clearly more advanced and feels more civilized than the
first draft. However, there are structural defects that could widen the gap
between powerful people on the one hand and weak-poor people on the other.
Because the fee concept (jizya), large taxpayers feel entitled to get great service
from the state, while the small taxpayer is only entitled for small services.
If you want to uphold justice, as in the Pancasila, there is no other option for us
other than the third, the tax as a handout for the Lord God Almighty, the Creator
of heaven and earth, for justice and prosperity for all. Taxes with the meaning of
Islam called zakat, which literally means purity and growth. That is, with taxes as a
charity, we purify our hearts from envy of others, as well as develop the
prosperity and justice for all.
That is, taxes are no longer as gifts (bribes) or fee (jizya) to the ruler, but as a
charitable exemption for justice and prosperity for all, especially those who areweak, poor and destitute (Attaubat 60).
In this concept, every dollar of tax money is money God is mandated to officials
of the state as a servant of God and the people (Amil) with a full sense of
responsibility. Those who abuse the tax money, is responsible to the people in the
world and God in the Hereafter.
FBRFBR vying to meet tax collection target:
ISLAMABAD - The Federal Board of Revenue (FBR) is struggling to achieve
the revised annual tax collection target of Rs 1604 billion owing to the slowdown
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of the economy, as the Board needs another Rs 843 billion in the remaining five
months of the financial year to meet the target.
The data shows that the FBR collected Rs 761 billion in the first seven months
(July-January) of the financial year 2010-11, while to reach the revised annual
target of Rs 1604 billion; the tax department needs further Rs 843 billion in just
five months period.
It is worth mentioning here that in the budget, the original tax target was fixed at
Rs 1,667 billion, which was revised, downward to Rs 1,604 billion after the
unprecedented floods in the country and further reduction is expected in view of
the current slowdown of the economy.
The FBR has provisionally collected Rs 761b in the first seven months (July-Jan) of
the ongoing financial year against the collection of Rs 695b in the same period last
year, showing an increase of 9.5pc in one year, Israr Rauf, Member Direct Tax
and official spokesman of the FBR, said while talking to TheNation on Tuesday. He
further said that these were provisional figures and would be finalized in next few
days.
Meanwhile, the tax department has missed the revenue collection target in the
month of January by some Rs 23 billion, as the Board has collected Rs 99.3 billionduring the last month against the target of Rs 123 billion. According to the
sources, FBR might reach Rs 110 billion in the next few days, as tax collection of
far-flung are still in pipeline. However, if FBR reaches Rs 110 billion than still,
shortfall would remain at Rs 13 billion.
The break-up of Rs 761b collected in seven months shows that FBR collected Rs
272b as direct tax and Rs 489b as indirect tax in July-Jan period of 2010-11.
Meanwhile, in indirect taxes, FBR accumulated Rs 327b as Sales Tax, Rs 67b as
FED and Rs 94b as Customs Duty in the first seven months of current fiscal year.
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TAX CONCEALMENT IN PAKISTAN
There are so many factors involved in tax concealment or people dont want to
pay taxes in Pakistan.
CultureNow that is a part of our culture to dont pay easily we dont want to pay our bills
for that things which we have used so then how can we be ready to pay taxes to
our government.
InflationThere are too much inflation exists in these days into Pakistan people dont have
enough money for living then paying taxes is difficult for them.
Peoples perceptionThere is a general perception about the government that they will not utilize our
money for their welfare and they will use it for themselves.
ConsiderationConsideration is a very major factor for people are not agreeing to pay taxes
because they will not get any benefit in return of that money which they will pay
to our government.
CorruptionThere are so many corruption scandals are out there related to our politicians so
corruption is prevail round us so now through media awareness people are very
much known about our politics and politicians.
Internationally, Pakistan is considered a soft state. But its too soft an acronym.
Pakistan is one of the most corrupt states of the world. According to the
Transparency Internationals ranking of the most corrupt countries of the world,
in 1996, Pakistan stood 2nd.
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"Pakistan is one of the countries of the world that has achieved notoriety in terms
of its association with twin evils (corruption and money-laundering) and
particularly with corruption. The gravity of the situation can be gauged from the
fact that the then prime minister of Pakistan, Nawaz Sharif, himself admitted
sometime back that the country was losing Rs.2 billion a day or Rs.720 billion ayear to corruption. (This is significant because the total revenue collection in
Pakistan is a little over Rs.300 billion.)" [Ijaz Hussain]
After the martial law of 1977, when a civilian government was installed, a new
political tradition got started that strengthened the institution of corruption in
Pakistan. Members of the parliament were to be given funds to use for the
development of their constituencies; these funds were never to be audited.
And there are a lot of politicians are involved in corruption therefore peopledont
have trust on them so they do not pay taxes to government.
Indirect taxesOur general public indirectly pays other taxes so they usually just want to conceal
these taxes, like sales tax etc.
Tax ratesThere are some prevailing tax rates which are so much for single individuals so
people hesitate to file return and to be a tax payer.
QUETIONARE
In order to determine the different views of tax payers (businessmans,
retailers, govt. officers etc) about taxation system in Pakistan we have made a
questionnaire which have different options to be selected by the tax payers so
that we can to know what are the reasons to pay or not to pay the tax.
That questionnaire is described as under:
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Tax Law
Questionnaire
Name: Section E
Occupation: Teacher: Prof. Umer Zaka
Age:
1. Why people dont pay taxes?a) they dont have moneyb) they dont have believe on tax departmentc) Other reason
2. How much people evade taxes in Pakistana) 10% to20%b) 20% to 40%c) 40%to 60%d) 60% to 80%
3. How much people in Pakistan pay taxes in a fair waye) 10% to20%f) 20% to 40%g) 40%to 60%h) 60% to 80%
4. How many politicians pay taxes in Pakistan?a) Only fewb) Rarely anyc) A lot ofd) All
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5. Gov.t should collect taxesa) Yesb) No
6. What amount of tax you paid last time?7. Did you think our government utilizes our taxes in a right way?
a) Yesb) No
8. You want to pay taxes if government solves your issues?a) Yesb) No
9. Do you think corruption exist at tax department in Pakistana) Very commonb) Very fewc) Very rarely
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Results and interpretation of results
QUETIONARE ANSWERS
1. Why people dont pay taxes?
a) they dont have moneyb) they dont have believe on tax
department
c) Other reasonInterpretation:The result shows that only 20% out of 20 say that they dot have believe on tax
department and other 80% have other reasons like:
Insufficient in money Consideration error Cultures part(Other people dot pay so I will not pay ) Tax concealment
And their and other reasons can be.
2. How much people evade taxes in Pakistana) 10% to20%b) 20% to 40%c) 40%to 60%d) 60% to 80%
1. 0%
2. 20%
3. 80%
0%
50%
35%
15%
20%
80%
1
2
3
50%
35%
15% 1
2
3
4
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Interpretation:
The results show that majority of the people think that only 20 to 40
percentage of people evade taxes in Pakistan except those other 60% use to
pay taxes or pay little amount they pay .
3. How much people in Pakistan pay taxes in a fair way
a) 10% to20%b) 20% to 40%c) 40%to 60%d) 60% to 80%
Interpretation:
There are very small number of people who pay taxes in Pakistan according to
our survey only 10 to 20 percentage people pay taxes in a right way to federal
board of revenue, thats a very small amount of people who contribute to our
taxes and follow the instructions of law.
4. How many politicians pay taxes in Pakistan?a) Only fewb) Rarely anyc) A lot ofd) All
Interpretation:The number of politicians who pay taxes is also very low only 55 % of people
thinks that only few one will pay taxes in Pakistan and 45%said that only rarely
any one pay taxes because they are in gov.t so they dot have any need to pay
taxes even media tell us that our president even dot pay their amount of
obligation so other will follow him.
70%
30%
0%
0%
55%
45%
0%
0%
70%
30%
0 0
1
2
3
4
55%
45%
0 0
1
2
3
4
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5. Gov.t should collect taxes?a) Yesb) No
Interpretation:
The people to whom we did survey they were agree on that
point that our gov.t should collect taxes because we use roads, sewerage,
electricity and other facilities but when these facilities will not available to us then
no one will want to pay out of his pocket because they felt there is no return .
6. What amount of tax you paid last time?
Interpretation:
The people give us answers according to their limit Rs:5000 to Rs 10000.
7. Did you think our government utilizes our taxes in a right way?
a) Yesb) No
Interpretation:
As I mentioned above that gov.t should utilize our taxes in a right way so when I
ask this question to our people so they were agree on my point or as we can seethere are no proper facilities available to the people .
90%
10%
0%
100%
90%
10%
1
2
0
100%
1
2
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8. You want to pay taxes if government solves yourissues?
a)Yesb)No
Interpretation:
Then I ask to people that if gov.t solve their issues they will be ready to pay taxes
then all answers were positive and all were ready to pay taxes.
9. Do you think corruption exist at tax department in Pakistan
a) Very commonb) Very fewc) Very rarely
Interpretation:
There are majority people thinks that corruption exixts at tax department because
the taxers become involve in tax evasion process and charge less amount of tax
after taking their commission to people.
QUETIONARE ANALYSIS
The above questionnaire analysis clearly shows that most of the tax payersdont
pay taxes because they receive nothing in return so if Gov.t facilitate them
according to their needs then definitely people will pay taxes in Pakistan.
100%
0%
80%
20%
0%
100%
0
1
2
80%
20%
0
1
2
3
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Personal Opinion:
Our personal opinion on that situation is that government should take some
important actions and form very medium size of committees for the collection of
taxes and as well as for the welfare of that people too from where they collectthese taxes once in five year the demands of the people to whom they collect
these amount of taxes should be fulfilled like make the road, sewerage system
repairing electric wires problem etc.
When the people will pay taxes and then once they get what they want, I think
people will not evade tax at all because that know that this amount will be use for
their welfare.
Suggestions:
Gov.t should adopt policy that pay taxes from at higher level then it will beimposed at lower level
Their should be properly equality occur Should facilitate our general public or taxer
Conclusions:
Collection of taxes is not bad but collect to one community more and to the
others are free from this obligation is wrong so the tax is good the welfare of our
country it must be collect by us but process, rates, utilization is also very
important as tax is.