Simplification of Income Tax Law
Aims at creating tax payer friendly culture
By AMANULLAH BASHAR
July 16 - 22 , 2001
The taxpayers, belonging to various segments of life
for which the new Income Tax law is being introduced, have expressed
surprise over what they called undue haste for introduction of the new
income tax law by the government.
They have pleaded that when the federal budget
2001-02, the most important factor for the fiscal discipline has already
been presented why the government was in a great hurry to finalize the
Income Tax Ordinance. The purpose of introducing the new law was to
simplify the taxation system by removing the complications or such
sections which are proving counter productive in creating a tax culture
in the country.
Representatives from various segments of the economy
including Chartered accountants, tax consultants and trade bodies have
urged the government to extend deadline for introducing the amended law
for which July 31, 2001 has been fixed.
Zammurad Hussain Jafery, President of the All
Pakistan Tax Bar Association, has appreciated the efforts of the
committee for simplification of the Income Tax law.
He said that most of the suggestions for easing and
simplification of the law have been incorporated in the Ordinance, yet
there is lot of room for improvement. For example, he said that
condition to deposit of 15 per cent of the income tax order for going
into appeal that is the most important issue of the system that has been
Under this system, an individual or the company has
to pay 15 per cent of the income tax order decided by the income tax
officer before going into appeal against that assessment order. He said
compulsion for submitting 15 per cent before going into appeal is
totally unjustified which should have been removed from the income tax
The objective behind making the taxation system as
friendly to the taxpayers was aimed at creating tax culture in the
country. Another objective was minimizing the dependence on withholding
tax that has become the major source of revenue, bringing every
individual and company into the ambit of the self-assessment scheme was
also important step taken in the ordinance. He however said that the
justice is the key for success of any system. Hence justice demands that
every income generated should be taxed. The privileges given in any form
always annoy rest of the segments of the society, he remarked.
The government while making amendments in the income
tax law has accepted 79 out of 139 proposals moved by the committee to
revise the Income Tax Ordinance.
The current system of making ex-post facto approval
of parliament for grant of tax exemption has degenerated into a routine
exercise which need to be rectified. The committee has recommended to do
away with the government powers to add, omit, change any clause in the
Second Schedule during the financial year, which can only be exercised
through an ordinance or an Act of Parliament in order to, minimize tax
Income tax law in Pakistan is generally called a law
of exemptions. Income tax Ordinance has 167 sections for taxing the
income and several hundreds of clauses for granting exemptions. The cost
of tax exemptions estimated in the fiscal 2000-01 at about Rs22.77
billion aggregating at 5.5. per cent of the total tax revenue collected
by the system during that period. The experts in financial management
feel that income tax exemptions do not offer a significant incentive for
attracting investment or promoting economic growth in the country. The
breakdown of the cost of exemptions including Rs0.5 billion in central
excise, Rs9.07 billion direct taxes, sales tax customs amounting to
Rs6.25 billion and Rs6.95 billion respectively.
The current depreciation schedule is also complex and
include multiple depreciation allowances including initial allowance,
first year allowance, reinvestment allowance, industrial building
allowance etc. the first year allowance ranging 40 per cent to 100 per
cent available to the investment in industrial undertaking set up after
November 21, 1997, re-investment allowance upto 40 per cent for
Balancing, Modernization and Replacement is also available.
The government has declined to accept the proposal to
change the depreciation schedule III to abolish multiple shift
allowance, industrial allowance and first year allowance and
re-investment allowance and allowed the initial depreciation at 25 per
cent which expired on June 30, 2000.
The draft Income Tax Ordinance, placed on the
Internet for seeking public opinion for simplification of the taxation
system, is likely to be introduced on the last day of the current month.
The government has expressed its intention to incorporate the
feedback from all the stakeholders especially those received after
placing the draft on web site.