Pakistan’s Taxation System & the way forward

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Pakistan's Taxation System & the way forward | Baaghi TV

Taxes that are levied on citizens are a major source of funds used by the government to function. These funds are accumulated in a variety of ways, such as income tax. This is a regular source of income for the government and is generally utilized for the provision of services including health, education subsidies, infrastructure, and credit all examples of ‘expenditure’.

Therefore, rather than concealing your income from the tax collector, pay your taxes since it is both a national and a human obligation to do so. Pakistan also has a well-established taxation system under which the generated funds are used to provide public services and development projects across the state. Thereby, the Income Tax Ordinance 2001 establishes a formal tax system and law.

Moreover, following independence, India and Pakistan enacted the Income Tax Act 1922, which is known as the Undivided Tax which Pakistan has enacted into its own tax legislation. The Income Tax Ordinance 1979, 32 years later. The same law was in effect until the year 2000. In 2001, a new legislation called the Income Tax Ordinance 2001 was enacted, and it is still in effect today.

There are two words for taxation that need to be clarified. There is a difference between an “Act” and an “Ordinance.” An “Act” is a law enacted by Parliament, i.e., by the country’s Prime Minister, whereas an “Ordinance” is a law passed by the President. All the tax legislation we’ve approved was enacted during an undemocratic age that is why they are referred to as ordinances.

Additionally, taxes imposed by the federal government falls under two categories namely, direct and indirect. Income tax is a type of direct tax whereas, sales tax, customs tax, and federal excise duty are examples of indirect taxes.

Of these, income tax is a levy paid on earnings. This may include the money saved after Zakat, Usher, and Workers Welfare Funds deducted from one’s entire salary. Total income is the sum of all sources of revenue. There are five methods for calculating revenue from various sources:

  • Salary earnings
  • Income from a business
  • Income from a property
  • Profits from the buy and selling of four shares, for example.
  • Other sources of income

It is important to know where the money originated from to determine salary income. There should have a professional connection. The amount received in this respect, whether salary, bonus, or pension, will be added together and counted as taxable income.

Furthermore, the revenue from property needs is that it is a land or a building that is rented and the income from it is computed under this heading.

Moreover, we will compute taxable income from the company and stock dividends, among other sources. If an income does not fit into one of the first four categories then it will be calculated under the fifth category, “Income from Other Sources.”

Altogether, this is a regular source of income for the government utilized to ensure public benefit such as: 

  • Affordable education
  • Better Medical facilities
  • Good infrastructure (roads, bridges, etc.)
  • Product subsidy 

Consequently, paying taxes is both a national and a Shariah duty of man. It is a show of respect for the legislation of the country in which he or she resides, so come on! Today, we make a commitment to pay our taxes the next time they are due..!

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The write-up has been contributed by Zahid Kubdani. He can be reached on @Z_Kubdani

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