The expedient solution for an efficient taxation system

Tax revenues are a backbone of a Country’s economy. The recent economic survey reported a growth of 14.0 percent with Pakistani tax revenues of Rs 2,580 billion during July-June 2014-15. Pakistan, however, has one of the lowest tax-to-GDP ratios at 10% with less than 1% of the populationpaying Income Tax. While the population that has registered to pay taxes has risen, the percentage that actually files their taxes has declined over the past five years.

The inability to efficiently collect taxes can be blamed on the improper mechanism and unvigilant regulations. Out of the taxable population of Pakistan, only 17% people actually pay taxes. Since Pakistan is unable to collect substantial tax revenues, it bridges the deficit between revenues and expenses by acquiring more debt. The additional debt in the existing debt puts a strain on the economy triggering inflation and drop in real income.

Ultimately, the major focus of the Pakistani government should be the collection of tax revenues. Given that Pakistani government lacks the capacity to directly tax earned incomes, it resorts to an increasing reliance on indirect taxation which fails to differentiate between the rich and poor. These indirect taxes hurt poor the most as these taxes take away a large portion of incomes such as tax on spending on food items, power, petrol etc.

Due to the significance of tax revenue for any government, Pakistan needs to take in all means necessary to collect these taxes including both major and minor changes in taxation laws throughout the year. Developing economies like Pakistan are keen to broaden tax nets but many interest groups have been able to evade taxation by remaining informal and not filing taxes at all.

The problem in the tax system of Pakistan not only lies with poor enforcement and a weak audit regime but also with poorly trained and under-funded workforce. The most convenient solution is to realize that there is a need for highly trained tax experts, who will work along with finance and legal counselors for businessmen as well as companies.

Tax professionals appreciate a self fulfilling vocation loaded with complex testing work. It also provides opportunities to get inside the customers business, influencing and executing business choices. A career in taxation offers an insight for the professional to build critical thinking capacities.

Taxation as a professional specialism can also help develop several individual qualities such as transferable skills for instance broad commercial awareness and valuable technical skills which can help a person create a very successful career in business. However, it is a challenging profession since the role of tax preparers also carries a lot of responsibility; a single error can cost a customer dearly, and the customer’s anxiety is infectious.

Taking a look at the long term scope, there is immense development potential in taxation as a specialized career choice. Careers in tax also provide a stable career path: the ups and downs of the economy do not influence the taxation expert job market; jobs in tax are relatively secure.

There are worldwide tax levy issues for business regardless of their nature, which obliges thorough assessment of information most appropriate for a Finance Professional. Taxation is being modernized now, which serves as an open door for aspiring youthful experts, more skilled in technology abilities, Xbrl is an example of how tax filing in developed markets is transforming, early adoption of Xbrl will also internationalize the work of tax accountants in Pakistan. The more established experts, to stay in the field have made a point to stay updated on tax laws and regulations. This can permit quicker handling of information and in addition a more exact and detailed count of information.

In conclusion, it is best to say that to revive the taxation system there is a need for all stakeholders to work for a common cause. Tax experts who can use their knowledge and skills to support tax policy reforms and their ethical tax planning to ensure businesses remain within the fence of the laws of land in their operations and computations. The golden rule of honesty is the best policy is a good place to start and end.

By Malik Haroon

The author is an ACCA Member, Accountancy and Finance expert and CEO of a taxation firm.