Perception of Federal Taxes in Pakistan
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+3--- PERCEPTION OF TAX PERCEPTIONCOLLECTION OF F INEDERAL PAKISTAN TAXES IN PAKISTAN Institute of Public Policy Institute of Public Policy Beaconhouse National University [Type the company name] | Error! No text of specified style in document. 1 Beaconhouse National University | 2 CONTENTS CHAPTER 1 1 INTRODUCTION CHAPTER 2 3 METHODOLOGY AND RESEARCH DESIGN 2.1 Sampling and Sample Distribution 3 2.2 Data Collection 5 CHAPTER 3 8 PROFILE OF RESPONDANTS 3.1 Respondents by Type 8 3.2 Distribution by Gender and Age of the Respondents 9 3.3 Distribution of Respondents by Education 10 CHAPTER 4 11 GENERAL PERCEPTION ABOUT TAX COLLECTION IN PAKISTAN CHAPTER 5 13 TAX ACCEPTANCE IN PAKISTAN 5.1 Are taxes Fair? 13 5.2 Perceptions about Tax Evasion 15 5.3 Perception about Tax Structure 16 5.4 Utilization of Tax Revenues 17 5.5 Differences in Perception of various Taxes 18 CHAPTER 6 20 PERCEPTIONS ABOUT RIGHTS AND OBLIGATIONS OF TAXPAYERS 6.1 Right of Taxpayers 20 6.2 Obligations of Taxpayers 21 CHAPTER 7 25 QUALITY OF SERVICES OF FBR OFFICES 7.1 Dealings with Taxpayers 26 7.2 Access and Timeliness 29 7.3 Professionalism of Officers 32 CHAPTER 8 34 TAX PROCEDURES/ADMINISTRATIVE MECHANISM 8.1 Tax Laws 34 8.2 Audits Appeals and Litigation 35 i CHAPTER 9 40 INFORMATION SYSTEM AND DOCUMENTS 9.1 FBR Publication and Press Releases 40 9.2 FBR Website and Updates 41 9.3 Effectiveness of FBR Help Lines 43 CHAPTER 10 44 PERCEPTION OF CHANGES OVERTIME 10.1 Tax Administration and Compliance 44 10.2 Integrity and Accountability 45 CHAPTER 11 48 GENERAL COMMENTS AND SUGGESTIONS 11. 1 General Perceptions about Tax Collection 48 11. 2 Perception about Rights and Obligations 48 11. 3 Tax Procedures/ Administrative Mechanisms 48 11. 4 Information System and Documents 50 CHAPTER 12 SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS 51 ANNEXURES Annexure A: The Questionnaire 53 Annexure B: Detailed Database by Question 58 Annexure C: Detail of Surveyed Sectors by Category 84 LIST OF TABLES Table 2.1 Sample Distribution by City and Type of Taxpayers 6 Table 4.1 Perception Regarding Factors Affecting 11 Table 4.2 Perception Regarding Factors Affecting Tax Collection 12 Percentage Distribution of Respondents Table 6.1 Rights of Taxpayers: Perception of Non-Tax Payers/Tax Evaders 24 Table 7.1 FBR Timelines 31 Table 7.2 Tax Officers have Appropriate Knowledge and Training of their Profession 32 Table 7.3 Criteria for Ranking the Quality of Services 33 Table 7.4 Assessment of the Quality of Services at FBR 33 Table 10.1 On Account of Efforts of FBR during the last Five Years, I feel Better Informed about: 45 ii LIST OF FIGURES Figure 2.1 Sampling Units 3 Figure 3.1 Type of Taxpayers 8 Figure 3.2 Type of Personal Taxpayers 8 Figure 3.3 Distribution of Respondents by Gender 9 Figure 3.4 Distribution of Respondents by Age Groups 9 Figure 3.5 Distribution of Respondents by Education 10 Figure 4.1 The most important Factor Affecting Tax Collection in Pakistan 12 Figure 5.1 Perception Regarding Fair Tax Payments 13 Figure 5.2 Response to “Pay More Tax if the Tax Burden is Spread More Equally” 14 Figure 5.3 Tax Evasion 15 Figure 5.4 Tax Evasion is Never Justified 15 Figure 5.5 If Found Someone Evading Tax Would Report to Authorities 16 Figure 5.6 Perceptions about Tax Structure 17 Figure 5.7 Willing to Pay More Tax if Revenues are Spent Better 18 Figure 5.8 Perceptions about Different Taxes 19 Figure 6.1 Summary Findings of Rights of Taxpayers 21 Figure 6.2 Appeal Against Decision of FBR 22 Figure 6.3 I am Treated by FBR Staff with Respect and Dignity 22 Figure 6.4 If I Ask FBR the Basis of my Assessment, It Is Provided Clearly in Time and in Detail 22 Figure 6.5 There is Unreasonable Delay In Disposal of Tax Refund 23 Figure 6.6 Obligations of Taxpayers 23 Figure 7.1 Dealings with Taxpayers 26 Figure 7.2 FBR Staff is Fair in its Dealing 27 Figure 7.3 FBR Staff is Cooperative 27 Figure 7.4 FBR Staff Treats me with Respect and Dignity 28 Figure 7.5 My Request or Complaints are Ignored by FBR 28 Figure 7.6 I Often Face Refusal from FBR Staff to Work on my Case on Account of Lame Excuses 28 Figure 7.7: Satisfied with Response time of FBR 29 Figure 7.8 Appropriate Measures of FBR to Ensure Access to and Availability of Tax Officers 29 Figure 7.9 Access to and Availability of Tax Officers in Office Time 30 Figure 7.10 Location of and Access to Tax Office 30 Figure 7.11 Processing Time for Registration 30 Figure 8.1 Tax Laws are too Complex 34 Figure 8.2 Tax Laws are Frequently Changed 35 iii Figure 8.3 FBR is Taking Appropriate Measures to Educate the Taxpayers 35 Figure 8.4 Appeal Procedure are Complex 36 Figure 8.5 Appeal Procedure are not Fair 37 Figure 8.6 Appeal Procedure are Time Consuming 37 Figure 8.7 System for Monitoring the Pending Cases is Weak 38 Figure 8.8 Litigation Procedures and Processes are Prolonged 38 Figure 8.9 FBR Takes too Long to resolve the pending cases 38 Figure 8.10 There is Discrimination in Treatment of the Taxpayers 39 Figure 8.11 Satisfaction with Audits 39 Figure 9.1 Need for Taxpayer Friendly Publication 40 Figure 9.2 Press Releases 41 Figure 9.3 Website Satisfaction 42 Figure 9.4 Resort to E-registration/E-enrolment Facility 42 Figure 9.5. Helpline Satisfaction 43 Figure 10.1 Changes in Perceptions of FBR Administrative/Operations Over Five Years 44 Figure 10.2 Perceptions about Changes in Corruption Over Five Years 46 Figure 10.3 Changes in Perception of Corruption by Level of Administration 47 iv CHAPTER 1 INTRODUCTION The tax-to-GDP ratio in Pakistan is low and only certain population groups are actually paying taxes. The Federal Board of Revenue (FBR) is responsible for the collection of both direct and indirect federal taxes in Pakistan. The Direct taxes include Income Tax, Workers Welfare Fund, Workers Profit Participation Fund and Capital Value Tax. The Income tax and other direct taxes are collected from corporations, association of persons (AOPs), individuals through voluntary payments and on demand following assessment. In addition, withholding taxes are collected by various withholding agents. Indirect taxes collected by FBR include General Sales Tax (GST), Customs Duties and Federal Excise Duty (FED). The bases for GST and Excise Duty are sales production of services and manufacturing activities carried out in the country; whereas import related taxes like customs duty, sales tax (import), FED (import), and Withholding Taxes (import), depend on the volume of imports. The main objectives of taxation are to enhance revenues in an equitable manner and provide support to the industrial sector through variations in tax rates. However, the country has one of the world’s lowest tax to GDP ratios of federal taxes at about nine percent. This is low especially when compared to neighboring countries and similar economies. High tax evasion, anomalies and concessions in the tax structure and deficiencies in tax administration have resulted in decrease of revenues, but have also created a poor public perception of the tax system. Institute of Public Policy at Beaconhouse National University, Lahore has conducted this study on request of FBR and with the support of Deutsche Gesellschaft fuer Internationale Zusammearbeit (GIZ) GmbH.GIZ supports taxpayer facilitation activities of the FBR and increasing transparency in the federal tax administration. The main objective of the study is to ascertain the level of tax acceptance of individual as well as corporate taxpayers of the tax system based on a survey of taxpayers. This will also help in identifying the weaknesses of the tax system from a taxpayer’s point of view and provide a useful insight into areas where the quality of tax administration needs to be improved. The report contains twelve chapters. Chapter 2 describes the methodology of sampling and research design. Chapter 3 gives the profile of the respondents of the survey. Chapter 4 gives the general perceptions of the respondents about tax collection in Pakistan. Chapters 5 and 6 respectively focus on tax acceptance of taxpayers and their rights and obligations. Chapter 7 1 deals with the quality of services provided by the FBR in terms of their dealing with taxpayers, access and timelines and their professionalism. Chapter 8 puts some light on the tax procedures and administration mechanisms. Chapter 9 discusses taxpayers’ perception about the information system and documents used by the FBR. Chapter 10 discusses changes in taxpayers perceptions overtime while chapter 11 reports the general comments and suggestions given by the respondents. The report concludes with summary of the findings and recommendations in chapter 12. 2 CHAPTER 2 METHODOLOGY AND RESEARCH DESIGN 2.1 Sampling and Sample Distribution A three-stage sampling methodology has been used to select a nationally representative sample of respondents (See Figure 2.1). In the first stage, the primary sampling unit was Large Taxpayers Units (LTUs) and Regional Tax Offices (RTOs) as follows: Hyderabad Figure 2.1 Islamabad Sampling Units Primary Karachi • LTU/RTO in Cities Lahore Sampling Unit Faisalabad Secondary • Locations within Peshawar Sampling Unit LTU/RTU • Business|individuals Quetta Tertiary Taxpayers within Rawalpindi Sampling Unit selected locations Gujranwala Sialkot In Punjab, the selection of primary sampling units was based on the size of the city. Large sized city (Lahore) Medium sized city (Faisalabad and Gujranwala) Small sized city (Sialkot) In Sindh, the selection of primary sampling units was done as follows.