The dawn of new era sunrise explodes itself as it rays flush down the crimson in order to announce the outset of a new day. Let envision the vitality of tax reforms in Pakistan. Tax policy in Pakistan began with the Government of India Act, 1935, wherein same was in the provincial domain. Subsequently, it was transferred to the federal government under the General Sales Tax Act, 1948. The government started implementation of the sales tax under Sales Tax Act, 1951, which provided for a limited base but subsequently the tax base was broadened through a Presidential Order of Taxation of Sales and Purchase in 1960 thus incorporating import, export and manufacturing of commodities besides extending several incentives. The Sales Tax Act 1951 was amended in 1981. In order to introduce the Value Added Tax (VAT), the Act of 1951 was repealed by the Sales Tax Act, 1990.
The sales tax on services was introduced in 2000 in the provinces which led all the provinces to promulgate relevant ordinances, though it was collected by the federal government on account of weak capacity at the provinces. Eventually, the 18th constitutional amendment 2010 transferred the sales tax on services to provinces.It necessitated provincial legislation for sales tax on services and establishment of tax collecting entities. Taking the lead, Sindh established Sindh Revenue Board in 2011, followed by Punjab Revenue Authority in 2012 and Khyber Pakhtunkhwa Revenue Authority (KPRA) legislated in 2013 through enactment of KP Finance Act, 2013.
More resources will naturally result in expanding fiscal space that can be utilized to further the provincial development agenda. Without strengthening the taxation framework, all government initiatives are difficult to materialize, hence taxes provide the basis for sustainable peace, good governance, and development.
The sales tax on services is faced with numerous challenges. Lack of documented economy, lack of awareness, unwillingness to pay taxes due to lack of trust on state institutions, weak tax culture, corruptions and misuse of public resources, tax illiteracy among small business owners, lack of will and capacity of the withholding agents, intra-province jurisdiction issues e.g. settled areas and PATA and dependency on the federal government in several areas of tax management are major among them.
The provincial governments have realized the need for generating their own revenue but much is needed to be done towards tapping the actual potential. Provision of smart and convenient processes will work to an extent. Apart from all the legalities and technicalities of the system, fostering a culture of taxation should be the overarching objective of the tax authorities.
People simply don’t like being taxed. They feel of being robbed by the state while paying taxes. They should have felt as if they are making an investment unto their own self in a collective way, which in fact is the rationale behind taxation. This inherent malady is to be addressed as perceptions build over generations are hard to change but we have to begin at some point. Curbing corruption and being courteous to taxpayers will contribute, but not much. Tax education at massive scale is the solution.