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The Level of Literacy Rate and Tax Education Both Are Different in the Case of Small Cities and Towns

The Level of Literacy Rate and Tax Education Both Are Different in the Case of Small Cities and Towns

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Published by shabywarriach

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Published by: shabywarriach on May 30, 2011
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01/09/2015

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 The level of Literacy rate and tax education both are different in the case of small cities andtowns. The problem is not mutually exclusive in the case of main cities like Karachi, Lahore,Peshawar, Islamabad etc. This situation requires two different strategies. In the small towns andcities, Government needs to increase the literacy rate as this is something beyond the ambit of FBR, however, in major cities FBR needs to increase the tax literacy rate. This does not onlyinvolve creation of taxpayer facilitation centre and the advertisement in the newspapers andtelevision but something more than that like TV dramas, training by FBR to taxpayer ± Compliance expected by FBR, Avoid paying additional taxes, Be Safe and Secure in terms of Inadmissible taxes, The Direct/Indirect Tax Regime etc.
SUGGESTION FOR IMPROVEMENT
 As stated earlier, I think the reasons of non-payment of taxes and ignorant attitude areharsh attitude of taxman, literacy rate and lack of tax education, no intention to pay taxfrom the earnings, afraid of coming into tax net, loopholes tax legislation, competitivecorporate tax rate under global tax competition, personal income tax structure andutilization of tax money.CBR is now improving in the area of harsh attitude of taxman only in relation to Income Taxowing to the scheme of Income Tax Ordinance, 2001. However, CBR is now moving towardsSales Tax and the most important step in this regard is the suspension of Sales Tax Auditfor six months but this is not a long term solution. Legislators need to improve the basicstructure of Sales Tax Act, 1990 to make it taxpayer friendly. Every problem in the SalesTax Act, 1990 is solved either through a Circular or SRO which complicates the issue. It issuggested that the Sales Tax Act, 1990 need to be revamped right from the scratch bearingthe existing Sales Tax Structure, Problems, Organisational Structure of Sales TaxDepartment, Long/Short term Macro and Micro Economic policies in mind. In furtherance,CBR need to work on Excise Tax and this requires a clear indication from the governmenteither to abolish it and replace it with Sales tax or Continue with Excise Tax.Literacy rate and tax education are mutually exclusive in the case of small cities and towns.The problem is not mutually exclusive in the case of main cities like Karachi, Lahore,Peshawar, Islamabad etc. This situation requires two different strategies. In the small towns
 
and cities, Government needs to increase the literacy rate as this is something beyond theambit of CBR, however, in major cities CBR needs to increase the tax literacy rate. Thisdoes not only involve creation of taxpayer facilitation centre and the advertisement in thenewspapers and television but something more than that like TV dramas, training by CBR totaxpayer ± Compliance expected by CBR, Avoid paying additional taxes, Be Safe and Securein terms of Inadmissible taxes, The Direct/Indirect Tax Regime etc.TV Drama may include normal taxation problems, common misconceptions of peoples,problems normally faced by the ordinary taxpayers etc. The training will serve two purposesfor the tax management purposes. CBR will get first hand information from the taxpayerand their representatives to solve their problem without requiring a middle man. In future,there will be no need to revamp the law after a span of long time as this process willcontinue to educate the two actors of a process ± Taxman and Taxpayer.Another most common problem is the lack of intention to pay taxes. This lack of intention isbased on the loophole in the taxation laws. This argument is based on the concept thatwhen a law requires a person to get itself registered with the respective tax authority. Forinstance, there is no requirement in Income Tax Ordinance, 2001 for registration of aperson under the law; however, the requirement is for filing of Income Tax Return. TheTaxation Structure Task committee needs to look at the most common problem, from CBRpoint of view, of ascertaining the point of time of registration. I would suggest basis yearrule of UK for improving the tax year concept and VATA 1994 for registration under SalesTax law on advance stock basis at the time of induction of capital.The most common problem of CBR is that people are afraid of coming into the tax net owingto variety of reasons. People are afraid about their past, this is their prime concern, as theydo not know what will be going to happen with them about their past. However, a numberof immunity schemes had been introduced for the taxpayers in the past but nothingspecially have been planned for bringing the new taxpayers into the tax net.Taxation administrative and legislative loopholes are another grey area and much had beenwritten by the experts over legislative aspects; hence, I am confining this to administrativeaspect. Suppose, a person imports some goods and sells the same without altering itsbasics of the goods, that is, Import trading. Said person files his sales tax return andstatement under section 115(4). The Sales tax department match the data with the import
 
data input at the custom stage and get the closing stock figure by reconciling the same withthe goods imported automatically. The Income Tax department verifies the statement undersection with the custom stage input and sales tax input through an online verification on itsintegrated computer system on WAN. Such a setup will serve as deterrent to the fraudulentaspects apart from the fact that less botheration for the taxpayers also. I will discuss thisidea in greater depth in my next article.Tax utilization is the most critical area which needs some thought with the passage of time.This aspect has two aspects, micro and macro level. From micro aspect, what the benefitsexisting taxpayers is getting? And what the benefits will a prospective taxpayer may get?These two questions need to be answered in order to increase the tax GDP ratio. Frommacro aspect, what is the formula and basis of utilization of tax money? Is the Governmentauthorized to use the money for debt servicing of the past loan or it needs to be utilized forthe benefits of the citizens ± These key question are some sort of policy decisions whichneeds to be taken at the strategic governmental level not at tactical level ± CBR. Taxstructure task committee may submit these queries as part of their recommendation.Governments must recognise that corporation tax rates must be internationally competitiveif they want to attract and retain companies and jobs. But cutting tax rates is an ongoingprocess in order to stay competitive. Pakistan¶s corporation tax rates are much higher thanthe OECD averages. It is worthwhile here to note that between 1996 and 2003, averagecorporate tax rates in EU member states fell from 39% to 31.68%, and in OECD countriesfrom 37.5% to 30.79%. This overview of trends in corporate tax rates around the worldsuggests that how countries are seeking to provide a competitive environment for business.In order to gain the advantage of geo strategic location of Pakistan, committee mustsuggest a drastic corporate tax rate reduction pre-requisite for seeking the requisiteincrease in share of international and European corporate headquarters.Middle and low income earners in particular have been hit hard over the past few years bythe introduction of the goods and services tax (GST) and by bracket creep, as demonstratedby a recent OECD report into the taxation on wages. CBR thinks that any new tax credit ordeduction from taxable income is a direct loss to the revenue ± which is just one side of themirror. This was in part aimed at stimulating the economy by encouraging higher consumerspending. Committee should suggest the induction of medical expense without ceiling and

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