The World Bank stated in its most recent report that Pakistan’s tax system needs to be overhauled to make provisions simpler, reduce loopholes, and ensure equitable distribution of the tax burden.
According to the paper, “Enabling a Modern and Efficient Tax System,” the goals haven’t been met despite methods and stated intentions during the past 20 years.
“Instead of a complete system overhaul, which may be infeasible from a political economy perspective, a carefully prioritized approach that bundles reforms with compensation mechanisms, stakeholder consultations, and continued investments in taxpayer services may be more promising,” the review noted.
The report recommended that long-term reforms focus on developing a straightforward system with a single provision for smaller businesses, a personal income tax system that is centered on collecting revenue only at the source, and a non-distortionary broad sales tax system.
The report included a roadmap for carrying out its suggestions. It gave the elimination of zero ratings on domestically sold products and the unification of rate structures for sales tax reforms immediate priority.
The review concluded that unifying the registration threshold across all industries could simplify the sales tax system.
