Lately, there has been a rather emotional debate on taxes. It has been argued that common pakistani (minus elite) has always been made the scape goat when it comes to generating revenue. I would, therefore, like to unravel the real situation with the help of some simple calculations.
Poor people
Income tax (or Direct tax):
poor ppl in pakistan hardly pay any income tax as their monthly income is below the minimum taxable income of 25,000 Rs.
Indirect tax (or GST/VAT):
now more than 70% of their income is spent on food which remains exempted from indirect taxes. on the remaining less than 30% income which they spend on non-food items, they pay indirect tax in the range of 17-25%. take the average and consider it to be 21%. This implies and indirect tax of just 6% (30% xply 21) on 100% of income.
All taxes:
now lets see what we get. Poor people pay 0% income tax and only 6% indirect tax on their total income. And this is while we assume that no one tries to evade taxes through clever accounting.
Middle class
Income tax (or Direct tax):
even a person earning 50,000 a month only pays 4.5% of income tax.
Indirect tax (or GST/VAT):
around 55% plus of their income is spent on food which is again exempted from any indirect tax. on remaining less than 45%, they pay 21% of indirect tax.
All taxes:
so a person earning 50,000 Rs. pays 4.5% income tax and 9.5% indirect tax on their income. We again have the similar assumption that none tries to evade applicable taxes which in reality is far from truth.
Conclusion:
Pakistanis are not over burdened from tax.
In contrast, minimum income tax in UK is alone 10% and goes up to 50% as annual income increases.
I will take the math here. Who would account for the massive tax evasions of the 3rd category you didn't mention here (the elite). If tax collection from the elite was smooth then there wouldn't be even a talk of any taxes.
ReplyDeletePakistan's problem as you very well know is tax collection, not the percentage.
@Jibran
ReplyDeletenot at all. only focusing on elite will not solve our problems. there are four types of elite: 1. who pay their taxes as their firms are listed on the stock exchange; 2. who are not meant to pay any taxes (feudal lords); 3. who have much their assets abroad; 4. who use their influence to evade taxes.... just bringing the fourth category within the tax net will not give us enough to cover our expenses.
everyone blaming the elite and elite blaming everyone is something we have been doing for last six decades.. its time for everyone to do their bit.
and Pakistan's problem is both the tax collection and the percentage..... but yes, for now we should be more focused on improving tax collection which is why RGST (Ill soon write a piece on this) is being introduced
and secondly, the issue is if poor are really being burdened with taxes. therefore, elite does not come into our equation at least under this heading
ReplyDeleteHow can the common man of pakistan be expected to pay tax when the rulers are themselves not paying anything.
ReplyDeleteThis is like watching a train crash in slow motion
www.pkr101.blogspot.com
so at least we agree to one thing that no one pays enough taxes in PAkistan. And this was exactly the point i tried to make in my article.
ReplyDelete