Dependence on direct taxes necessary for national development


KARACHI: /DNA/ – FPCCI’s presidential candidate, Atif Ikram Sheikh, said on Sunday that reliance on indirect taxes should be reduced to push the country towards rapid development.

Dependence on direct taxes is necessary for national development, but progress towards this is very slow, he said.

Atif Ikram Sheikh, who has also served as VP FPCCI, Chairman PVMA, and President ICCI, said in a statement issued here today that reforms should be introduced in the tax administration to improve its workings.

Reliance on indirect taxes and withholding taxes are damaging; therefore, basic structural changes are needed for documenting the economy to increase revenue, he said.

The business leader stressed that the policy measures would expand the tax base, eliminate tax gaps, and enhance the efficiency of the tax system.

Many hurdles in tax collection can be overcome by employing technology, as is being practised in other countries where tax collection is satisfactory.

The use of information technology is necessary to maximize tax compliance, enforcement, tax base broadening, facilitation, and transparency, he said.

He noted that indirect taxes disproportionately impact vulnerable segments of the population. They take away a larger proportion of income from lower-income individuals compared to those with higher incomes.

Direct taxes contributed 37.2 percent of total FBR tax collection, while indirect tax contribution was 62.8 percent, and within total FBR collection, sales tax remained the top revenue-generating source with a 41.2 percent share, customs duty 16.4 percent, and FED 5.2 percent, respectively.

Atif Ikram Sheikh said that a substantial portion of the population is engaged in the informal economy, where incomes are irregular and often insufficient.

Indirect taxes, being consumption-based, affect these individuals more because their entire income is spent on necessities, and they may not have the financial buffer to absorb the impact of increased prices.

Indirect taxes can limit the capacity of the poor to save and invest in income-generating opportunities. With a significant portion of their income going towards indirect taxes and basic expenses, they have less room to save and invest in education, skills development, or small businesses.

The FBR should prioritize bringing untaxed sectors within the purview of taxation rather than further burdening the poorer segments that are already subject to indirect taxation.

He demanded that the government expand the tax base by bringing more people into the tax net and move towards the policy of progressive taxation for higher-income groups.

Our taxation structure favours the rich and leaves the poor behind, while reforms can ensure the economic safety of the poor class.