Pakistan, however, has been in the grip of a taxation crisis since its inception.

The country
lacks a tax culture. That is why only 0.3 percent of the total population pays direct taxes in
Pakistan, which makes Pakistan’s tax to GDP ratio only 9.45 percent, one of the lowest in
the region. The government earns 55 percent of its tax revenue through indirect taxes. Forty-
five percent taxes are collected through direct taxes, 70 percent of which is in the form of
withholding tax. This ratio is uneven. While indirect taxes affect the expenditure capacity of
everyone, including the poor, direct taxes is taken only from the rich and middle class, and is
used for general welfare and human development projects.

One other important demand is the establishment of tax courts in Pakistan. There are no tax
courts here. The first and second appellant forum for the aggrieved taxpayer is
commissioner/collector appeals run by officials of the FBR. The second appeals lies before
the tribunal whose members are also appointed by the FBR. So, actually the aggrieved
taxpayer has to seek relief against the FBR through FBR officials. That is why tax courts
should be established free from the control of executive.

More importantly, public trust in taxation system of Pakistan should be established.

Transparency should be ensured, which can only happen if everyone is taxed fairly and
justly. The public should be guaranteed that taxes are public money that will be used for their
welfare: for better educational systems, standard health facilities, building roads and dams
etc. Development requires money and money comes from taxes. There is also a public
responsibility. People should understand that the reason behind heavy, indirect taxes is the
non-payment of legitimate direct taxes. This forces the government to levy indirect taxes, the
burden of which is shared by everyone, e.g. increasing taxes on fuel and electricity.