sales tax comparative analysis of india v/s pakistan

sales tax

1. COMPARATIVE ANAYLSIS OF TAXATION SYSTEM PAKISTAN V/S INDIA

2. Modernizing Pakistan's Tax System: Insights from India's GST Comparative Analysis This study delves into a comparative analysis of the sales tax systems in Pakistan and India. We aim to assess and compare the effectiveness, efficiency, coverage, and structural frameworks of these systems, highlighting their key features and differences . SWOT Analysis The study also examines the strengths, weaknesses, opportunities, and threats (SWOT) of each system. This analysis provides a deeper understanding of the strengths and challenges faced by both countries' tax systems, offering a platform for identifying potential areas for improvement. Exploring Opportunities We will explore how adopting key elements from India's Goods and Services Tax (GST) model can enhance Pakistan's tax system. This includes examining the potential benefits of digitization, simplified tax structures, and broader tax coverage. Recommendations for Reform Finally, the study aims to provide actionable recommendations for modernizing Pakistan's tax administration to enhance compliance, transparency, and revenue generation. These recommendations are based on the insights gained from the comparative analysis and the SWOT assessment.

3. UNDERSTANDING THE SIGNIFICANCE OF TAXATION Economic Stability Taxation is crucial for generating government revenue to fund essential public services, such as education, healthcare, and infrastructure. It plays a pivotal role in shaping a nation's economic stability and development. Economic Equity Efficient taxation systems help rebalance economic resources and foster social equity by imposing higher taxes on luxury goods or wealthier individuals .

4. Legal Framework: Governed by the Sales Tax Act, 1990. Operates on a Value Added Tax (VAT) model, taxing value addition at each production and distribution stage. Administrative Structure: Federal Level: Federal Board of Revenue (FBR) collects sales tax on goods nationwide. Provincial Level: Provincial governments collect sales tax on services. Implementation by authorities such as Sindh Revenue Board (SRB ) and Punjab Revenue Authority (PRA). Key Feature: Dual jurisdiction: Federal and provincial governments manage sales tax collection separately. TAX SYSTEM IN PAKISTAN

5. KEY FEATURES : A COMPARISON PAKISTAN V/S INDIA Aspect Pakistan India Governing Body Federal Board of Revenue (FBR) GST Council Tax Base Goods and some services Goods and services (broad scope) Standard Rate 18% 0%, 5%, 12%, 18%, 28% Exemptions Basic necessities, healthcare, etc. Food, healthcare, education Input Credit Available for registered businesses Available across the supply chain

6. TAX IN INDIA

7. SLAB RATES IN INDIA

8. EFFECTIVENESS Indicator India Pakistan Tax-to-GDP Ratio 11-12% 9-10% Corporate Tax Rate 22% (reduced to 15% for new businesses) 29% Top Personal Tax Rate 30% 35% Tax Base Expanding, but still limited Narrow, heavily reliant on indirect taxes Tax Compliance Improving, but still challenges Low compliance, high evasion

9. Efficiency Indicator India Pakistan Tax-to-GDP Ratio 11-12% 9-10% Administrative Costs (as % of revenue) Reduced due to digitization (GST, e-filing) High due to manual processes and inefficiencies Use of Technology and Data Analytics Strong: GSTN, e-filing, data analytics for tax evasion Weak: Limited use of data analytics and outdated systems Tax Compliance Rate Improving, but still low in informal sector Low: Only 2-3% population files returns Corporate Tax Compliance Strong, especially in large businesses Weak, especially in SMEs and large informal economy Indirect Taxes Reliance High, but less than Pakistan High, due to reliance on sales tax and duties EFFICIENCY

10. EFFECTIVENESS AND EFFICIENCY Tax-to-GDP Ratio India: 11-12%, Pakistan: 9-10% Digital Infrastructure India: Advanced GST Network, Pakistan: Limited digital integration Compliance India: Improving, Pakistan: Low compliance and high evasion

11. COVERAGE AND COMPLIANCE COVERAGE INDICATOR INDIA PAKISTAN Tax-to-GDP Ratio 11-12% 9-10% Percentage of Workforce in Informal Economy ~80-90% ~70% Agricultural Sector Taxation Exempt, minimal contribution to revenue Exempt, minimal contribution to revenue Percentage of Population Paying Taxes 3-5% (Income Tax) 2-3% (Income Tax) SMEs and Small Business Coverage Weak, especially in rural areas and small businesses Weak, informal sector dominates Service Sector Coverage Well-covered (GST applies) Moderate, but low compliance Corporate Tax Compliance Strong among large businesses, weaker in SMEs Strong for large businesses, weak in SMEs

12. KEY COMPLIANCE ISSUES (INDIA) 1 Tax Base India: Expanding but limited, Pakistan: Narrow, reliant on indirect taxes Agricultural exemptions 2 Income Tax Filing Weak Enforcement in Small firms 3 Informal Sector Non-Compliance in the Informal Sector: (Main source of tax evasion)

13. KEY COMPLIANCE ISSUES (PAK) 4 Tax Base Widespread Tax Evasion 5 Income Tax Filing Weak Administrative Capacity 6 Efficiency lack Limited Technology Use

14. TAX COLLECTION PROCESS OF INDIA 04. 03. 01. 07. 05. 06. 08. 02. 01. GST REGISTRATION 05. Obtain Container and interesting GSTIN for identification 02. REGISTRATION 06. File GST Returns . 03. Businesses enlist to comply with GST laws. 07. Regularly record returns with deals, buy, and charge details . 04. PAN & GSTIN 08. Online Submission START FINISH

15. TAX COLLECTION PROCESS OF INDIA 12. 11 . 09. 13. 14 . 10. 09. File returns online through the GST Portal . 13 . Pay pending charge risk online 10 . GST Arrange Assessment 14 . Compilance checks . 11 . GST Organize surveys submitted information for accuracy. 12 . Tax payment START FINISH

16. TAXPAYER JOURNEY: A STEP-BY-STEP GUIDE Step 1: Registration & Declaration Step 2 Citizen Registration: Enlist with the Pay Charge Department. Income Declaration: Announce salary and earnings.

17. Compliance & Clearance 1 Step 3 Online Recording: Submit tax returns electronically through the government portal. 2 Step 4 Self-Assessment: Calculate and pay taxes based on self-assessment. 3 Step 5 Electronic Verification: The returns are electronically confirmed. 4 Step 6 Compliance Check: Tax authorities conduct compliance checks. 5 Step 7 Clearance Certificate: Receive a clearance certificate for compliance. 6 Step 8 Penalties/Reassessment: Non-compliance may lead to penalties or reassessment.

18. Completing and Verifying Your Tax Return 1 Step 3: Filing You can file your tax return online or manually. Choose the method that best suits your needs and ensure accurate data entry. 2 Step 4: Payment Make your tax installments promptly at assigned banks or online through authorized payment portals. 3 Step 5: Verification Your tax return will be reviewed digitally or manually by the charge division to ensure accuracy.

19. SWOT ANALYSIS: INDIA Weaknesses Challenges for small businesses adapting to frequent changes Threats Economic slowdowns impacting GST collections and policy instability Strengths Unified tax structure, digital platforms for compliance, expanded tax base, strong tools for tracking transactions. Opportunities Utilizing digital tools like blockchain and AI, expanding the tax base, aligning with global tax standards. Weaknesses Challenges with compliance, especially in the informal sector and SMEs, reliance on GST collections for revenue, potential conflicts over revenue sharing. Threats Decreases in consumer spending, policy instability, fraud and tax evasion.

20. SWOT ANALYSIS: PAKISTAN Strengths Robust legal framework, industry-specific regulations, efforts to digitize the tax system. Opportunities Investing in digital tax systems, international collaboration, expanding the tax base. Weaknesses Limited tax base, high informality, complex system, inefficient tax collection. Threats Political instability, economic fragility, rampant tax evasion and corruption.

21. TAX REVENUE COMPARISON 27.04T India 2022 Indian Rupees 4.80T Pakistan 2022 Pakistani Rupees 18.37% India Growth 2021 to 2022 7.87% Pakistan Growth 2021 to 2022

22. REAL-LIFE EXAMPLES Provincial Conflicts Disputes between Punjab and Sindh over service taxation GST Compensation Delays in GST compensation during COVID-19 pandemic Classification Disputes Debate over GST rates for foods like parathas

23. KEY RECOMMENDATIONS FOR PAKISTAN Digital Transformation Invest in robust digital infrastructure and real-time transaction monitoring Standardization Harmonize tax rates across regions and simplify tax slabs Innovation Integration Implement AI-powered fraud detection and blockchain for transparent transactions

24. CONCLUSION: PATH FORWARD 1 Digitization Implement comprehensive digital platforms and unified tax identification systems 2 Harmonization Standardize tax rates and develop integrated IT infrastructure 3 Education Enhance taxpayer education programs and simplify compliance processes

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