Tax surveys that include the aspect of taxpayer perception provide valuable

inputs in the design of a tax simplification intervention and could be used to

benchmark its progress on issues of political economy by the policy makers.
IMF: A typical developing economy collects just 15 percent of GDP in taxes,
compared with the 40 percent collected by a typical advanced economy.

Why Levy Multiple Taxes? Multiple taxes impose an additional burden on

businesses—however, they generate additional revenue for government. One
could argue that reducing the number of taxes (by merging some and
eliminating others) while managing to collect the same amount of tax revenue
would satisfy both businesses and the government. While this is true, it rules
out the important fact that some taxes have goals beyond raising revenue.
Taxes are used to regulate (for example, environmental taxes), redistribute (for
example, progressive income tax), introduce transparency in the collection and
allocation mechanism (for example, road users’ taxes, social security taxes, and
other earmarked taxes), emphasize the role of institutional spending (local
taxes for local public goods), force savings (government-imposed compulsory
payment to pension funds), and so on. Any prescription to rationalize fewer
taxes would have to address these various functions.
A portfolio of taxes: reducing volatility in tax collection
1. Unstable Tax System: A tax system that is excessively dependent on
income taxes or on commodities would severely strain government
revenues when gross domestic product (GDP) growth slows or when
commodity prices fall, respectively. The government should levy taxes
that add stability to the tax system, such as property taxes and taxes on
consumption, neither of which is very elastic. Any tax-simplification
reform should ensure that the resulting tax system does not become
highly leveraged.
2. Why Promoting equity is important. In some cases, multiple taxes are
levied to improve the equity of the tax system. Different taxes capture
revenue from different bases, which are proxies for various levels of
wealth. For example, while the progressive income tax collects revenue
from those with income flows, it is possible for individuals to earn little
income but have wealth in the form of capital assets such as property,
shares, and bonds. A wealth tax is, in this case, used to capture revenue
 from such persons, who might otherwise escape taxation. The same
applies to taxation of certain goods more likely to be consumed by the
rich. For example, a luxury tax on rooms in five-star hotels seeks to
achieve this goal. While it is generally recommended to use taxes only as
a revenue-collecting mechanism and leave the social goals to be tackled
on the expenditure side, creating equity and forcing redistribution are
among the primary functions of a tax system.
3. Tax visibility. Purely political considerations also help determine the use
of multiple taxes. For example, less visible taxes can raise important
amounts of revenue—without public backlash. In this line of reasoning,
less visible taxes such as indirect taxes (sales tax, customs duty) are
favoured over visible taxes such as direct taxes (income tax and property
tax). Taxes paid in small increments are favored over those involving a
significant payment. n Taxes imposed on non-residents are favored over
those imposed on residents.
Methods for Tax Promotion:
1. Shrinking tax number:
A Step-by-Step Approach Any strategy that seeks to lessen the number of taxes
should take into consideration both their revenue-generating and other roles.
It could be done in three steps as per WB guidelines in A Handbook for Tax
Simplification:
a. Build a complete inventory of all taxes, fees, and compulsory
contributions, both national and local.
b. For each item, provide the legal basis, the policy purpose, the
procedural burden for business and revenue productivity, and—last
but not least—the political economy purpose.
c. Use this information to combine, retain, and eliminate some of the
taxes and fees. Appropriately adjust the rates of the taxes that
remain to ensure that the government’s revenue goals are met.
In many countries, the tax-simplification process is likely to face significant
opposition from vested interests, especially those collecting taxes that might
be eliminated. Strong political support of the simplification process is
imperative to overcome entrenched interests (such as those of tax collectors
who receive informal payments). As the private sector stands to benefit
significantly from the simplification process, it should do what it can to
generate such political support.

2. Unambiguous Tax laws:

Policy makers and businesses in both developed and developing countries
frequently express their frustration with what they perceive as
incomprehensible tax codes. Because tax laws apply to a large number of
transactions, it is imperative that their meaning is conveyed in a
straightforward and simple manner, or they will result in an additional
compliance burden for businesses. The goal of any tax code is to provide the
legal basis for taxation, and it is likely that this requires the use of precise legal
terms (for example, an exemption versus a deduction, tax-inclusive price
versus tax-exclusive price).
3. Computers and information technology:
Information technology (IT) is enormously useful in improving the effectiveness
and efficiency of the Tax Administration in a variety of ways. Given the rapid
innovation in IT, any discussion that tries to lay out general principles will
inevitably become quickly dated. Common current applications of IT in the TA
include online databases and information repositories, communications
infrastructure, data mining, management information systems (MISs), and
artificial intelligence applications. For developing countries that still rely, partly
or wholly, on procedures and systems that are not IT-enabled, the cost
efficiency and effectiveness of introducing IT is beyond doubt.
The role of Information Technology in Tax Simplification is deeply interwoven
with the Tax Simplification Solutions. For example, allotting unique tax ID
numbers, maintaining tax accounts, crediting taxpayers’ accounts for taxes
paid, implementing a risk-based audit system, and so on are extremely difficult
without a sound Information Technology infrastructure.
Other important issues are security and the related issue of networking.
Database security is best achieved by the use of standalone systems with
adequate access security and standalone backup copies of databases.
Visible versus less visible tax collection:
In the wake of political sensitiveness of taxation implies that tax-collection
mechanisms that are less visible are preferred to those that are more visible.
This makes tax withholding a preferred collection mechanism as compared
with direct tax payment by the taxpayers. Withholding improves compliance
for various reasons as taxes are collected from some of those taxpayers who
were unlikely to pay taxes themselves. There are also psychological reasons
why risk-averse taxpayers are less likely to gamble with the system when the
taxes are already in the hands of the tax authorities. But tax withholding, by its
very nature, shifts the collection burden onto the taxpayers, increasing their
compliance costs (especially decreasing their cash flow). Ideally, withholding
should be used only when the additional compliance that it may result in
trumps the compliance cost. But there is a political reason why governments
might prefer excessive withholding in order that tax may be collected less
visibly through third parties.
4.  Tax administration and corruption
Corruption is a significant issue in most TAs in developing countries. Hence
system simplification, one of the goals of which is to reduce unnecessary
interaction with tax authorities, creates less opportunity for corrupt officials to
extract money from taxpayers. Any intervention to improve the tax climate is
likely to be opposed from within the TA, and strong political support is a
prerequisite to any tax-simplification program.
5. Curbing exemptions
It can also reduce the tax system’s complexity while boosting revenue by
broadening the tax base. Many countries incur a sizable loss of revenue
through ill-designed exemptions, such as costly tax holidays and other
incentives that fail to attract investment. And discretionary granting of
exemptions provides opportunities for corruption.
5) Broadening the Base of Taxpaying population
Again I would talk about Income Tax and moot the point which you’re very well
cognizant of is it that the total number of income taxpayers in our country
approximately makes up one million. This figure speaks itself that how there is
only a meager segment of population presently in the tax net while there is a
more significant strata among population which is beyond and out of the tax
net. According to the statistics of CBR, 36% people in the opulent areas do not
contribute to the national exchequer. So many tax surveys have been
conducted and many amnesty schemes have been introduced to “grab” and
“lure” the non-taxpaying community but Mr. Chairman, your Honor being the
head of the CBR would concur that the required targets have yet to see the
light of the day. To remain out of the tax net is the ignominious feature of our
tax culture. There may be many causes behind this phenomenon, some might
have been noticed and many may not, but this is crying need of the day to
address the same to tackle with and arrest the tax evading culture.
Improvement in the collection of taxes is so crucial that government can’t and
should not wait, nor will half measures do.

Rampant Corruption in the Tax Administration

The melody of corruption is a much talked of subject in these days. This isn’t
restricted within any circumscribed boundaries or any specific class of people.
Since the tax institutions is part of and linked with the other institutions, it isn’t
immune from the negative effects permeating in those others. I would not let
myself to raise eyebrows against any specific person or any particular segment;
however, I would be failing in my duty if I do not concede that many of us have
not been able to clean their Augean stables to transform a cleaner and
transparent tax culture. Encouragement and flourishment of tax culture can
only take place through the removal of gray areas and discretionary powers
presently used with impunity by taxation officers. Removal of corruption will
ensure wise and prudent expenditure of collected revenue, which will
encourage and mobilize new taxpayers who are hesitant to contribute and
continue to remain outside the tax net.
(7) Mistrust and Misgivings about use of Tax Money
The values of integrity, trust, respect, commitment to service, teamwork,
personal responsibility and continuous improvement should be upheld.

(9) Restoration of the Self-esteem of the Taxpayer

The instances are not infrequent when the taxpayers have been harassed or
blackmailed by the personnel of the tax machinery. This leads to the feelings of
hatred and avoidance on the part of taxpayers and this attitude has its
resultant repercussions on the state interest of maximum revenue generation.
According to rough estimates 73% of the tax is collected through the
mechanism of withholding tax while 13% is voluntarily paid by the assesses
with the returns and 14% of the total tax revenue is collected by the tax
machinery working under the aegis of CBR. Mr. Chairman, frankly I’m not after
your coveted slot but can we dare ask that if this is only that 14% for which is a
much extended tax bureaucracy is engaged and again this is the area where
most complaints regarding harassment and abuse of power are emanating .
Mr. Chairman, I would very respectfully submit that now the taxpayers have
started questioning the raison deter of this very large establishment, when the
income tax contribution towards the total revenue from all sources is 16%
which is inclusive of income tax deducted at source. Furthermore, about 80%
of the total income tax is paid by 1, 000 multinational companies.

(10) Apprehension of Tax Evader

Although I solicit that taxpayers should have an independent environment
where they could act and pay their taxes without any fear or coercion,
however, by this I do not mean that the taxpayers should be let escort free not
to be answerable to the tax administration. I would add that over the period of
time, many deviants and tax defrauders and hobnobbing and colluding with
the tax collecting personnel and the “middleman” to completely evade from
the tax net or otherwise to pay minimum tax although they should pay higher
taxes according to the quantum of their income/assets. The existing cultural
realities and social attitudes do warrant for taking a very stringent action
against these delinquents and deviants. The machinery of the state should
come into play with full force against them for bringing them to book. The CBR
should come out to liaise with various departments of the federal and
provincial governments, contact private and public institutions, tap banking
sources both at home and abroad, and obtain information from newspapers,
advertisements, informants and third parties on taxpayer’s incomes,
expenditures, bank accounts, properties, assets and investments.

(11) Certainty of Tax Code / Legislation

I’ve no hesitation in saying that this has been the common characteristic of our
tax culture that there happen frequent and haphazard changes in the tax code
of the country. Mr. Chairman, let me say who’s here who doesn’t understand
the vagaries of the phenomenon of SROs. Even the substantive and procedural
parts of the tax legislation have continually been in the throes of repealing and
amendments. My humble request on this eventful occasion would be to the
legislators and the policy makers that please give some semblance of
permanence and perpetuity to the tax code. It is quite apparent that income
tax law has not been enacted with clear objectives and on long term basis.
Moreover, there are abrupt and periodical amendments, which adversely
affect the tax collection and business community.

(12) Automation of Tax Machinery

A culture isn’t straight jacket nor is it a water-tight compartment not to allow
fresh intakes. Similar is the case of Tax Culture. We should always be open
ended to give due room to the fresh ideas and to the modern technology. To
be more precise, I’m talking about equipping the tax administration with the
latest automation and reaping full benefits of the recent age of Information
Technology. I appreciate and understand the constraint of our scarce resources
but I would stand for the conviction and you would agree with me that we will
have to leave no stone unturned for harnessing the best available modern
automation infrastructure to meet the challenges of the day.
(13) Advertising
Advertising is a persuasion technique that can greatly support the
articulation and development of tax culture. Tax Administration should have
an aggressive communication policy to achieve the voluntary acceptance of
taxes. I believe that the campaign for promoting and developing the tax
culture through advertising can remove the inhibitions and persuade the
citizens to promptly pay their taxes. Careful use of contents and message can
obliterate the irritants and can further promote the tax consciousness among
masses. It is obligatory to reinforce in the message, the norms, values and
strengths that govern the tax system, focusing and centering attention on the
concepts of transparency, efficiency, effectiveness, modernization,
simplification, honesty, professionalism, ethics and service. I believe that the
information campaign may instill in the taxpayers the spirit for paying their
taxes voluntarily. The best way to promote tax culture in the people is to
convince them that the revenue generated out of their taxes is being used by
the Government honestly and for the greater welfare of the society. The
mass media can further build a strong public opinion for the denouncement
of those who happen to evade taxes. Only thus it will be possible to generate
a true interaction between the different social sectors and the tax
administration.
FBR:
Women's support as vital for creating a sustainable tax culture and ensuring
maximum tax compliance in the society. "Women can lay the foundation of a
better tomorrow by leading positive behavioural change in the society.
Creating a tax culture and promoting tax literacy was essential to making
informed decisions about tax affairs, effectively manage financial resources,
increase incidence of tax compliance, raise awareness about filing of Income
Tax returns and emphasize the social value of taxes as contributor to socio-
economic development of the society.
.