The World Bank has called for an overhaul of Pakistan’s tax system to simplify provisions, close loopholes, and ensure an equitable distribution of the tax burden. In its latest report titled ‘Enabling a Modern and Efficient Tax System’, the bank highlighted that despite strategies and intentions over the last two decades, the desired outcomes have yet to be achieved.
The report recommends a carefully prioritized approach to bundling reforms with compensation mechanisms, stakeholder consultations, and continued investments in taxpayer services. The review noted that a complete system overhaul may be infeasible from a political economy perspective. In the long run, reforms should aim to create a simple regime with a single provision for smaller firms, a personal income tax system focused on taxing income only at the source, and a non-distortionary comprehensive sales tax system.
To implement the report’s recommendations, the bank has outlined a roadmap, assigning immediate priority to unifying the rate structure and eliminating zero ratings on domestically sold products for sales tax reforms. The review states that simplifying the sales tax system could involve unifying the registration threshold for all industries.
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Pakistan’s tax system has been a point of contention for many years, with criticism of its complexity and lack of transparency. The country’s tax-to-GDP ratio remains low compared to other developing countries. The report recommends that the government takes steps to address these issues and increase the efficiency and effectiveness of the tax system.
The World Bank’s report is expected to be welcomed by the Pakistani government, which has been keen to attract foreign investment and improve the country’s economic performance. The report’s recommendations, if implemented, could provide a much-needed boost to the economy by increasing revenue and improving the business environment. However, the government will need to take action quickly to address the issues highlighted in the report and ensure that the tax system is reformed in a way that benefits all stakeholders.
