New Tax in Pakistan to Adress Hidden Incomes

May 2, 2011 Taxation in Pakistan

Asset Tax in PakistanThe federal government of Pakistan is looking to address the issues of tax evasion and disproportionately low collection of tax revenues in the country by instating a new tax on assets in the next budget.

Over the weekend the representatives of the Economic Advisory Council (EAC) and the Revenue Advisory Council (RAC) of Pakistan held a joint meeting to plan the potential makeup for the government’s next financial budget. During the meeting it was decided that a new asset tax should be imposed in the country to help bring more high-income individuals into the national tax net. The rate for the new tax has not yet been finalized, with the Councils currently proposing a levy of 1.25 percent or 1.5 percent.

According to press communiqué released following the Councils’ meeting, the asset tax will be particularly useful at targeting high-earning individuals who conceal their incomes and invest in assets such as real-estate or stocks. It was originally proposed that the upcoming budget also contain a new wealth tax, however, the Councils concluded that such a measure would carry too great a risk of capital flight and even higher levels of tax evasion in Pakistan.

Combating tax evasion is a constant topic for the EAC and RAC, and at their next conjoint meeting it is planned for an official request to be made to regional tax authorities of Pakistan to make greater efforts in ensuring the compliance and payment of recently instated agricultural income taxes.

Tax revenues account for approximately 10.2 percent of the national GDP of Pakistan, the 25th lowest level in the world, according to the Heritage Foundation. In 2010 only 3.2 million people were registered to pay taxes in the country, and only 1.9 million actually made any payments. Pakistan’s population has now expanded beyond 180 million people, meaning that approximately 1 percent og citizens of Pakistan currently pay taxes.

Photo by amir taj