Revenue generation: Existing income tax laws need simplification

Economists say IT Ordinance 2001 has not improved collection.

ISLAMABAD: The Pakistan Economy Watch (PEW) on Sunday said that existing income tax laws have failed to deliver therefore the country needs new and simple income tax law that are easily comprehensible, business friendly, fair and acceptable to all stakeholders.

The time-tested, well-settled and easily understandable Income Tax Ordinance, 1979, was replaced by complex Income Tax Ordinance, 2001 which was drafted by a foreign expert who was not well aware of ground realities, it said.

The Ordinance which was enforced on the directives of foreign lenders invited criticism from concerned quarters before promulgation, said Dr Murtaza Mughal, President of the Pakistan Economy Watch.

It changed basic scheme of the law and brought in inexplicable terminologies. It was amended 600 times within one year which proved its inconsistency, he said while talking to International Tax Counsel Dr Ikramul Haq.

Hundreds of corrections have changed the basic concepts of the Ordinance which is still difficult for many to interpret, Dr Murtaza Mughal said.

Dr Ikramul Haq said that tax practitioners as well as many FBR officials find it difficult to understand its basic concepts which are a reason behind low revenue collection and malpractices.

He said that government should try to introduce a new, friendly and clear income tax ordinance to replace the 2001 Ordinance which is against established principles of taxation. It is irrational, illogical, based on assumptions, self-contradictory and full of blunders, he added.

Otherwise, Income Tax Ordinance, 1979 which worked well for 21 years and was capable of absorbing reforms can also be re-promulgated, said Dr Ikramul Haq.

Figures will show that the 2001 Ordinance has failed to improve collection or revive the ailing tax mechanism, rather it has contributed to deterioration.

Dr Ikramul Haq said that situation would have been better if Income Tax Ordinance, 2001 had been thoroughly reviewed after being debated on concerned forums and getting proposals from all the stakeholders before promulgation.

Published in The Express Tribune, October 3^rd, 2011.