1) Pakistan already has highest tax rates in the world, imposition of additional taxes will increase the rates in range of 39 – 49 percent (specified sectors and banks). Add workers welfare fund (2%), and workers profit participation fund (5% on industrial entities) and dividend 15% ‑ tax rate on shareholders goes up in range of 55 to 65 percent;
2) In most countries, corporate tax rates are significantly
lower than individual rates- as large scale value addition, productivity and
innovation happens in corporate sector. Further, most countries have been
competing to reduce tax rates to attract investment and multinationals to
locate their head quarters/operations in their country. For instance tax rates
for Corporates in a developed economy like UK is 19%, while tax rates for high
income individuals are 40% and 45%. Similar trend prevails in most economies.
Therefore, all economies promote corporate entities- in land of pure, Pakistan
does exactly the opposite.
3) Considering very large portion of Pakistan’s economy is informal, imposing
excessive tax on few corporate entities that are in formal sector and
transparently report higher profits tantamount to punishing them for honesty.
It will naturally prove counterproductive and will promote tax evasion. As saying
goes, "No good deed goes unpunished".
4) Biggest cause of Pakistan's bankruptcy is huge cost and
inefficiency of public sector- the Government of Pakistan spends 22% of GDP vs.
15% in Bangladesh. Much of such spending is wasted- payments of salaries to
much larger number of people than required and other costs against which
service delivery remains substandard. Even the so called development
expenditure (aggregating Rs2.3 trillion for federal PSDP and provincial ADPs in
current budget) is poorly spent on projects that do not generate adequate
economic benefits. Most projects are initiated based on political
considerations without adequate economic justification; poorly executed
resulting in huge cost over runs and inordinate delays. It would have been far
better, if such development spending was cut by 50% for reducing fiscal deficit
rather than imposing such exorbitant taxes on private sector corporates.
5) All over the world, it is through private sector that countries produce
goods and services at lower cost for their citizens and become competitive to
generate exports. Bulk of employment is also created in private sector. All of
this happens when the governments have small role ‑ promoting efficiently and
regulating private sector through competitive and adequate fiscal and monetary
policies.
Unfortunately, in Pakistan the keep governments have kept growing the public sector through excessive taxation on a very small formal sector that is shrinking with time.
It is unfortunate that in Pakistan economic and social indicators continue to get worse; but the governments keep on going back to IMF every 3 years, but unwilling to learn.
*Asad Ali Shah is a Fellow Chartered Accountant, engaged in management consultancy, tax, corporate and financial advisory services for over 35 years. He has been advising large national and international organizations across a range of industries and markets in the areas of strategy development, organization design, governance and Consulting. Have advises clients to help them improve their governance, strategy, operations, internal control and risk management systems. He frequently writes on macro economy, governance and matters of public interest.
