World Bank calls for simpler tax regime

ISLAMABAD: Pakistan’s tax system needs an overhaul to simplify provisions, close loopholes and ensure equitable distribution of tax burden, the World Bank has said in its latest report.

The report, ‘Enabling a Modern and Efficient Tax System’, said despite strategies and proclaimed intentions over the last two decades, the outcomes remain to be attained.

“Instead of a complete system overhaul, which may be infeasible from a political economy perspective, a carefully prioritised approach that bundles reforms with compensation mechanisms, stakeholder consultations and continued investments in taxpayer services may be more promising,” the review noted.

In the long run, reforms should aim to create a simple regime with a single provision for smaller firms, a personal income tax system focused on taxing income only at the source and a non-distortionary comprehensive sales tax system, it suggested.

The report also outlined a roadmap for the implementation of its recommendations. For sales tax reforms, it assigned immediate priority to unifying rate structure and eliminating zero ratings on domestically sold products.

According to the review, simplifying the sales tax system could involve a unification of the registration threshold for all industries.