FBR recommends new taxes to bridge shortfall
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ISLAMABAD: After dealing with the external sector deficit, the government’s attention is now being drawn to a growing shortfall in tax revenues that is beginning to bite.
In the first five months of the fiscal year, a shortfall of approximately Rs102 billion has been recorded in revenue collection, and this week officials from the Federal Board of Revenue (FBR) gave a briefing to the prime minister about the situation, with suggestions on how the shortfall can be reduced in coming months.
In the briefing, the FBR pointed to an erosion of the tax base due to the large tax cuts announced in the last budget of PML-N government in April, as well as the Supreme Court’s decision to suspend collection of tax on mobile phone cards. Also, the government’s decision to slash sales tax on petroleum products has cost the exchequer almost Rs35bn thus far.
In June this year, the Supreme Court of Pakistan suspended deduction of taxes on the top-up of prepaid cards by mobile phone service providers. “We have witnessed Rs16bn shortfall from the telecom sector in the first five months of the current fiscal year owing to the suspension of taxes on prepaid cards,” the FBR sources told Dawn.
Revenues hurting due to tax relief given to various parties
FBR has proposed that the federal government should approach the Supreme Court to find a way to restore these taxes. The annual revenue collection alone from these taxes on prepaid cards is around Rs80bn.
In another proposal, the FBR urged the federal government to fix sales tax on every litre of the petroleum products from January instead of charging sales tax on price, since the price fluctuates and throws off all revenue projections.
“We have urged the government to immediately take up these two issues to arrest the decline in revenue,” an official source said on condition of anonymity.
Due to the government’s reduction in the sales tax rates on petroleum products, FBR has recorded Rs35bn shortfall in the first five months of the year. To reverse this trend, FBR has suggested to the federal government to fix sales tax on each petroleum product irrespective of increase or decrease in prices.
The PML-N government had also used this mechanism of fixed sales tax rate on petroleum products in the year 2016, to prevent revenue collection from declining steeply when oil prices fell.
The tax base has eroded by about Rs90bn from beginning of the current fiscal year. The provisional revenue collection reached Rs3,844.5bn, which is lower than the target set at Rs3,935bn. The FBR had initially targeted a total collection of Rs4,103bn for the fiscal year.
And the target for the current fiscal year was set with 14pc growth in mind over the revised revenue target in the fiscal year 2017-18 which was missed by Rs90bn.
The prime minister was informed that the pre-election measures have additionally contributed to the revenue shortfall in the first five months of the fiscal year. The relief given to the salaried class has led to a decline of Rs18bn in shortfall in income tax collection followed by Rs13bn from contractions of development budgets at the federal and provincial levels during the months under review.
The other measures announced in the last budget that also contributed to the shortfall include a Rs3bn drop in income tax from dividends, and another Rs1bn from fixing the condition of return-filer for purchase of property effective from current fiscal year.
The lowering of sales tax rates on fertilisers also led to a shortfall of Rs4bn in the first five months, another Rs5bn by replacement of LNG imports with furnace oil (difference of tax rates), and another Rs1bn due to closing of some sugar mills in Sindh.
According to the sources, there are several other products on which duty rates were lowered in the last budget, leading to drop in revenue collection. The only area where revenues will be restored partially is the income tax for salaried class, the sources said, adding the impact would be visible by end of June 2019.
It is not unusual for new governments to face revenue shortfalls in their first few months. The PML-N government faced a Rs40bn shortfall in 2013, which was bridged through a minibudget.
Published in Dawn, December 9th, 2018
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Comments (66) Closed
Dec 09, 2018 08:48am
Impose a nominal fix rate tax on all property rental income with no exception and exclusive of all other taxes. Apply this even on Kutchi Abbadis/agricultural land also. Keep it simple with no distinction of filer/non filer giving it secrecy granted for Amnesty Scheme. There are more properties on monthly rent of 50,000.00 then total income tax filers. No Urban/Rural distinction, if tax rate is kept similar to Zakat majority will not object. Tax should be on property and its rental income not on owner.
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Dec 09, 2018 08:48am
Strong feudal lobby will have to sacrifice immunity to tax on income from agriculture, like any other business and activity. Do they want to sink Pakistan for their selfish motive.
Government will have to tap several avenues who are not paying tax on real income. Big shops and departmental store are earning million daily as can be seen from the rush of customers. Similarly eating houses are doing rolling business where margin of profit is not less than 30 to 50 percent. Excise and Land Customs staff should be posted at all these businesses to determine actual sale and calculate daily profit. I am sure through these measures deficit can be easily overcome. Good number of people can be provided jobs in Excise and Land Customs.
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Dec 09, 2018 08:53am
Yes introduce breathing tax may be.
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Dec 09, 2018 09:03am
Devaluation of money, high inflation and now more tax. What is going on?
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Dec 09, 2018 09:18am
Only indirect taxes. This is squeezing the common man. When will the FBR babus get off their chairs and tax millions of tax evaders? Make. beginning somewhere. Get out, talk to these people through media or n town hall meetings and begin modestly. The current system is unsustainable.
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Dec 09, 2018 09:20am
With no structural reforms in the last 100 days this was expected.when will ptindo the real work of tax collections from the ruch and thoe who own massive properties.enough of talk.its of no use if no action is done.
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Dec 09, 2018 09:25am
More challenges for IK.
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Dec 09, 2018 09:31am
Introduced agriculture tax..why the poor will pay tax on mobile..
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Dec 09, 2018 09:51am
YES tax tax on everything to generate money . No planning how to create jobs no planning how to develop industry no export .
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Dec 09, 2018 09:58am
All the best Pakistan. May you remain economically and sociologically stable. India's interest is in seeing you like that
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Dec 09, 2018 10:10am
Can I ask how many wealthy individuals have been brought to tax net by FBR in these 5 months? And how much tax was collected from them? Whe go in Islamabds posh sectors and ask them where did they got this money to build these mansions? Go in DHA Karachi, Clifton, DHA Islamabad? If you are not going to ask Maliks, Chudrhys, Wdayars , Khan’s , Buugtis, Mrries etc you are going no where.
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Dec 09, 2018 10:28am
Put more taxes on people that are already paying hefty burden of tax. FBR needs to tax home owner's at the value of homes. There should be an independent department who could evaluate properties. Government should have the right to buy the property at 15% more than claimed value of house.
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Dec 09, 2018 10:40am
What about the shortfall in tax collection due to lack of buying and selling of property. I believe FBR should introduce a reasonable one-off advance tax on purchase of property so that there is some activity in this sector. Real estate business is completely at a standstill for the last 6 months so the tax revenue that could be collected must have dropped considerably and also the slowdown in economic activity effects eveyrhing else in the market. FBR brains should come up with a simple formula in this regard so that there is some movement in this sector.
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Dec 09, 2018 10:46am
Instead of claiming double salaries and perks for just 'fixing' tax rates and shifting the burden of tax collection to the likes of so called withholding agents, the FBR should broaden the tax base by finding new tax payers from among the wealthier classes of the societies. The more the 'indirect' taxes, the more 'directly' the poor are hit!
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Dec 09, 2018 12:06pm
Of course, if you can't raise the existing taxes, you create new sources of tax.
I suggest, taxing internet use, because too many Pakistanis spend too much time on their phones chatting, browsing, downloading or on Social Media. Charge a tax for each hour they stay on line and Rs. millions will come rolling in everyday!
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Dec 09, 2018 12:34pm
What about extraordinary salaries, bonus and other undue levish faculities being enjoyed by FBR and its staff.
FBR collects public money and keeps undue share of it for itself and employees giving loss to the national Exchequer that also should be noticed by someone.
Such theft is a source of discouragement to the poor tax payers.
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Dec 09, 2018 12:43pm
in first place why did they reduce taxes for salaried person, we were tuned and happy to give taxes at source,now paying 167 rs every month instead of 3500 , i literally feel ashamed .
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Dec 09, 2018 12:46pm
@Asif Raza, Really? Do you have any proof of this 'theft' that you allege, or just repeating an allegation you heard second-hand?
Imagine a government department, especially tax collection, which falls under the Ministry of Finance, without a budget. According to you, the FBR collects Trillions in Taxes, but keeps a big chunk of it for its lavish spending, staff holidays abroad, luxury cars, fine dining and bonuses for its officer - without any oversight or accountability!?
If you had said, that the Railway Minister travels on a Train without buying a ticket for the journey, I would have believed you. But your assertions are simply too diabolical to be believable!..
Why is the Oppostion silent over this, we wonder, therefore- if what you allege is true??
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Dec 09, 2018 12:48pm
After Gunnah tax this time may be Neki tax. It should be imposed on every praying person or may be on those who pay zakat and almsgiving.
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Dec 09, 2018 12:51pm
@Medu, haha! understand your anger and disappointment. But we as a nation have to bear these tough days for our future generation.
At least this govt. is not taking taxpayer money outside the country and spending it on us, unlike previous govts.
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Dec 09, 2018 12:55pm
Impose taxes where they are lower than they should be. Not on things that will get you the most money even though they are already taxed enough or more than that. It will only promote people being permanently pessimistic and un-trusting of the government. While they might be trapped in the tax net, they'll discourage others to do so.
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Dec 09, 2018 01:07pm
The government seems to be failed by increasing tax on the backbone of economy i-e agriculture
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Dec 09, 2018 01:13pm
FBR only suggested imposition of taxes which is related to common people forgetting about the big fishes. They don't have any plan for the collection of taxes from big fishes.
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Dec 09, 2018 01:16pm
Tax on agriculture. Not possible. This country is of jagirdars, waderas only. Instead govt should curtail it's expenditure. Put all bureaucrats on contracts. No facility. Only a lump sum salary. No pension. No vehicle. No medical. Travel for official work will be borne by the Exchequer. All the deficit will be covered in a month. This is Naya Pakistan Mr Khan. The way you and your associates dream of tabdeli not possible. Priority to education, justice and economy. Bring to accountability all without any fear. Your encroachments drive in Karachi have brought unemployment to one million. Stop it.
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Dec 09, 2018 01:17pm
Take 1 Rupee from every person in the country every day. 30 rupees per month. 30 x 12 x170,000,000 (population of Pakistan) = 79.2 billion Rupees right away like that.
Question is: WHERE SI THE GOVERNMENT SPENDING IT? We pay for every aspect of our lives anyway.
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Dec 09, 2018 01:17pm
The people of the country especially salaried class are already paying so many taxes, and in return of these taxes govt. is gifting poverty, corruption, shortage of water, gas and electricity. Why the govt. is not taking back the looted money of the country? PTI promised so many times to take back the looted money. Where are they now? PTI’s govt also has the same agenda like previous ones to impose taxes and doing nothing in ending corruption.
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Dec 09, 2018 01:46pm
Chief sahib elimination of tax on prepaid mobile card was popular decision but it has broken the back of revenue generation. People can afford to live without mobile phone but can not survive if govt. imposed indirect taxation that results in hike in basic items. We are still paying the cost of Iftikhar Chaudhry case reversal of denationalisation of steel mill and have incurred billions of rupees losses on steel mill. Please look into the matter.
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Dec 09, 2018 02:14pm
@Skeptic, Does our system allow a common man to investigate a govt officer and collect proof against him? Everyone knows the tax collected by common man is considered a free cow's milk and this is the reason spent on lavish life style of our govt ministers, members and officers along with their families.
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Dec 09, 2018 02:16pm
Only poor will suffer more, Well done
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Dec 09, 2018 02:19pm
IK has said policy making will not be job of FBR.Their job is recovery.Strange FBR is again making policy for increase taxes.
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Dec 09, 2018 02:30pm
IK team had not done its homework before coming into government. This is for sure.
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Dec 09, 2018 02:42pm
If you slow down GDP growth rathe then get ready to see massive fall in tax revenue. I have no idea who is running economics affairs. Under pmln growth rate was 5.8% but now pti own govt is estimating it under 3.5% and some independent economists are expecting it fall further if pti govt do not take these things seriously.
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Dec 09, 2018 02:47pm
In short, every tax is going to increase. Why not make the tax evaders pay tax instead of making life hell for common man.
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Dec 09, 2018 03:12pm
I wonder why the FBR is not talking about the dire need to expand the tax-net. The only country where tax evasion is so high, but the tax evaders going Scott-free due to bribery and corruption at the highest level in the ranks and files of the revenue collecting agency of this country. This idea to impose new taxes instead of trapping the non-filers is to hoodwink the government of PM IK. Further, nobody is talking about the big business houses in Pakistan doing billions of dollars through the corrupt system of over invoicing, and under invoicing just under the nose of the customs authorities. Why?
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Dec 09, 2018 03:22pm
@Nit pick, you must have clearly lost your mind
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Dec 09, 2018 03:34pm
The short fall is not in revenue, it is the long fall in corruption that is to blame.
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Dec 09, 2018 03:38pm
It's highly unfortunate and grossly disappointing that people have a naive tendency to refrain from paying taxes in almost all South Asian countries in general and Middle Eastern nations including the Islamic Republic of Pakistan in particular. No government in the world could function effectively without adequate revenue, which could primarily be collected through taxes paid by the people. If everybody pays his or her taxes on time, the administration in Islamabad or its affiliate FBR need not levy any new taxes anymore. However, if the tax bracket keeps on shrinking instead of swelling, what other options does FBR has got but to impose more taxes to stay afloat and run the government?
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Dec 09, 2018 04:10pm
Rich business folk need to start paying tax its that simple
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Dec 09, 2018 04:12pm
Why doesn't the government introduce an effective and workable tax policy to expand the tax net instead of concentrating on a couple of areas.
There is no effective invoicing system which allows tax evaders to either under invoice or not invoice at all by using informal invoices with no GST number assigned to the business. Awareness should be raised among public to demand formal invoices for the goods and services received. Small businesses and professionals in small towns and cities are making millions but pay very little or no tax.
To expand tax net, govt should also review below sales tax criteria:
Manufacturers having taxable turnover below Rs. 5 million and retailors below Rs. 5 million in the last 12 months are exempted from registration and payment of sales tax.
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Dec 09, 2018 05:38pm
A country where feudal lords holding thousands of acres of land, using tax free water in a wasteful manner, producing millions in agricultural revenue, & FBR going after common man by indirectly taxing them, exposes agency’s ineffecient & unprofessional approach in ever filling this widening gap between expenditure and revenue in foreseeable future. The FBR is only capable of putting old wine in new bottle, by imposing indirect taxation, which favors rich who keep evading under the tax net & conveniently stash their untaxed monies by buying properties abroad.
These proposed cosmetic changes in revenue collection through indirect taxation will harldly make any breakthrough in revenue collection but shift enormous economic burden to poor masses who make 80% population of the country. The PM, who Promised to correct this distortion in our ailing economy, must not fall to this trap of these very people, responsible for this mess & go after tax defaulters, mosly sitting in the parliament
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Dec 09, 2018 05:39pm
Devaluate Currency, Increase interest rates, Broaden Tax Collection, all are IMF conditions agreed by the Govt to be completed in 2 months before their next meeting for IMF loan. Hope they would then use the loan wisely, else consequences would be catastrophic especially for the poor
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Dec 09, 2018 05:39pm
Useless FBR. They should first have a better web portal for tax returns submission, as people like me get annoyed with such complicated website of theirs. Although I really want to submit tax returns and am sure there are several like me who get ticked off due to the complication of their website. First make the process simpler and then talk about new taxes. Bunch of amateurs. Should listen to voice of public masses about their useless website and ways to improve it, as comments are overwhelming on social media. So fix the existing problem before you impose new taxes. #PTI
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Dec 09, 2018 06:19pm
@Syed Nazim, Well said. These scared cows, who having spent millions of either their own untaxed money or donation from alike big businesses on their election campaign, mostly comprising of feudals, sitting the parliament, will never pass such laws compromising their interests or of those who financing partners. This circus is going on for decades together, & we end up with 16% mostly salaried people paying taxes & feudals holding sugar mills, vast land holding paying no tax on water used & agricural product sold. The subservient bearucracy unable to raise revenue, levy indirect taxation on the poormasses on daily use commodities. This indirect tax means peanut for these fast & furious but make 80 % poor to become more miserable.
The curing of economy needs to be documented, which despite passing of much talked about 100 days, remains to be a distant dream. While the country”s economy going into a sinkhole, our legiatures are busy squabbling over selection of various committee heads
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Dec 09, 2018 06:47pm
FBR has failed to collect taxes from existing filers, especially the business people and yet it want to impose new taxes. Obviously, the salaried class and end-use consumers have to take the brunt.
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Dec 09, 2018 09:38pm
@Nit pick, Why double taxation on property?. The governmet is already getting heavy property tax on every property. In addition Property had been acquired through money on which income tax had already been paid.Why not increase indirect taxation for NON FILERS on items generally consumed by middle class and above?.
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Dec 09, 2018 09:43pm
A Tax is something like common pool fund, which is used to pay salaries of government staff, officers, and ministers. Other heads of expenditures include health,defence,education, roads & bridges. Unfortunately the return of tax or good governance is at all not felt in Pak. Atleast in Sindh the governance is appalling often millions of rupees fund lapsed unused at the end of fiscal year.We need qualified ministers who must have degree in management. Just imposing new tax without better management will not deliver.
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Dec 09, 2018 10:02pm
These are not new taxes, they are news ways on old taxes. A tax on agriculture or enforcement measures on retail would qualify as 'new'.
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Dec 09, 2018 11:30pm
How about taxing any agricultural land holdings above 150 acres or so at extra rates as the big landlords have avoided taxes like the plague since the beginning. Don’t put additional burden on middle class.
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Dec 09, 2018 11:35pm
Shouldn't they be thinking about creating more tax brackets and raising maximum tax percentage? I think it should be 50%and beyond for highest tier and introduce more taxes on agriculture and reduce taxes on feul and other items of necessity. To sport growth at grass root level.
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Dec 09, 2018 11:54pm
The Rs 3,845 billion revenue collected is Rs 90 billion less than the lowered target of Rs 3,935 billion (initial Federal Board of Revenue (FBR)) target was Rs 4,103 billion) for the first 5 months of the current fiscal year started July 1, 2018.
Although the FBR has identified the areas of shortfall, the Rs 90 billion shortfall is still appalling.
A timely solution for the revenue shortfall needs to be identified urgently. Blaming the previous government will work only for so long. The current government has to take responsibility of its first fiscal year in power.
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Dec 10, 2018 12:04am
Taxes short fall is lack of collection by income tax officers. This department is full of corruption.
Easy solution to demand double collection from each Income Tax Officer.
Tighten up collection where it is not implemented.
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Dec 10, 2018 12:11am
To collect more taxes go after all private doctors.
Each specialist in their clinic see 80 - 100 patients in the evening. They spend barely 3 minutes per patient and most charges are Rs 2500. Skin doctor charges 3500 for 45 second visit.
2500 X 100 = 250,000 Ie 2.5 Lakh per night.
If income tax inspector sit in the clinic as a patient, he can easily find the scope of income. I bet these doctors do pay more than two Lakhs in taxes as it is all cash.
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Dec 10, 2018 12:17am
I have been trying to pay my income tax-2018 for last 40 days but have not found the latest tax return forms from anywhere. Tax help desks are not at all helpful. They don't even have paper to print out forms. They all suggest on-line print, (which is never through for various reasons,) or use the old forms. I used the last year's forms but my payment was wrongly credited to FBR's Suspense Account, waiting for me to come and register complaint for non issuance of CPR. Even on meeting authorities for complaint registration, the concerned official (a lady) was never on seat for hours, then came only for picking her bag to close for the day earlier than the closing time, asking me, a senior citizen, to come the next day. I am sure these tactics can never meet any target.
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Dec 10, 2018 12:25am
The big shots in FBR and Finance ministry should start immediately collecting taxes fro all the storekeepers and restaurants located in malls and fixed installations like fast food and snack shops. They make enough money to be on the Tax paters list. They should be serious instead of lecturing on a daily basis on non-issue subjects.
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Dec 10, 2018 06:47am
@Patriotic 786, Take out online print out. Fill it and send it to the relevant regional tax office by post through postal services or courier service.
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Dec 10, 2018 04:50pm
FBR is finding lame excuses for its failure to increase the tax base. PTI Government should clearly let the FBR officials know that they must make up the shortfall by adding new tax payers or be ready to face the ax.
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Dec 10, 2018 06:57pm
Perhaps the honourable Chief Justice can tell us how he thinks the income from mobile phone cards and other expenditure that he has committed the Government to can be replaced. It is easy to be not democratically accountable and tell the executive what it needs to do. It is actually much harder to raise money in a responsible way.
Mr Assad Umar should stop playing around with duties and other indirect taxes which disproportionately hurt the poor. Experience from around the world suggests all of these can augment but not replace serious income receipt from direct fair income tax.
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Dec 10, 2018 07:01pm
@Amjad Durrani Engineer USA,
Thank you for succinctly describing the revenue situation in Pakistan. I could not put it better myself. Hope someone in FBR and government read Dawn!
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Dec 10, 2018 07:08pm
kindly revert back the taxes salried class was paying at source, i feel ashamed when instead of almost 3k pkr every month no i pay 167 rs. we were happy to contribute that amount
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Dec 10, 2018 07:09pm
@Ahmed,
So a poor labourer with six children and a wife should pay Rs8 per day out of probably a Rs300 per day income a tax rate of 2.7%. Meanwhile a rich landowner who does not pay for his water, exploits his labourers earning less than Rs300 per day with 2 kids in well to do private school and earning many lakhs each month should pay 4 rupees a day!
This type of thinking is what has got us to this mess.
We need to widen the tax base not narrow it
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Dec 10, 2018 09:47pm
Tax the honest tax payers to death to make up for the non-tax paying privileged, high up politicians, the rich land lords and businesses who are "exempted" from all kinds of taxes..
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Dec 11, 2018 02:13am
@Lord Ickenham, India itself is grappling a declining situation. Dont worry about us, but yourselves.
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Dec 11, 2018 02:15am
@A, That is too simplistic. Living in big house made from hard earned money then losing job with survival income does not mean person should be hounded. Take case by case.
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Dec 11, 2018 02:16am
Tax the agricultural sector to at least 2%, similar to zakat rate.
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Dec 11, 2018 05:46am
Note that government, as usual, is only interested in applying more indirect taxes on those Pakistanis who already pay taxes!
Note that government, as usual, refuses to put those wealthy Feudals and Elites into the Direct Tax Net where they belong!
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Dec 12, 2018 11:47pm
The Pakistan govt should have s large preponderance and a preference for indirect taxes ....! Which are easier to collect — like excuse snd central sales taxes.
More importantly the govt should seriously try to curb imports if nonessential goods like luxury autos, and other luxury items.!!!
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