Pakistan's Tax Structure Is Being Revamped.

  

In Pakistan's 220 million people, tax evasion is common; only 2.5% of people are enrolled in the tax system, but even fewer actually pay it. When it comes to effectively raising public money from taxation, Pakistan ranks among the least effective emerging nations. The country's tax burden still accounts for 10% of GDP despite ongoing efforts to restructure and revise the system. Economic growth, social prosperity, and prosperity have all been hampered by the failure to strengthen the tax culture. Some of the negative effects of the country's ruined tax system are the current economic situation, rising foreign debt, growing budget deficit, and the burden of indirect taxes on the poor. This trend can be reversed by implementing fundamental policy changes that will increase the effectiveness of the tax system and make it a significant source of income for Pakistan's frail and unsteady economy.

Modern practice is the behavioral approach to tax policy. Both affluent nations, such as the United Kingdom, and developing nations, such as Kenya and Rwanda, have used the behavioral approach to tax policy with success. This strategy takes into account how people tend to affect the public's behavior. Both in developed and developing nations, this is a sector that is expanding quickly. Following the introduction of the Nudge idea by renowned economist Richard Thaler (Thaler, 2018) and administrative law specialist Cass Sunstein, behavioral incentivization gained popularity. They essentially made the argument that extra information on moral, ethical, and social choices can have an impact on people's decisions. Nudging is the term used to describe this additional knowledge that affects human behavior. They have argued that even a tiny push can have a significant impact on public policy. As a result, this idea is well-liked by many public policymakers worldwide.

Based on nudging, several experiments have been carried out. The World Bank and the Costa Rican government worked together in 2004 to increase the number of 50000 non-filer enterprises that file their taxessuccessful experimental and brought 20 percent more tax collection to the country’s national economy. Additionally, there was a significant increase in tax filing cases.

A similar successful experiment was carried out in Poland, where the Polish government, along with the World Bank, issued letters to late taxpayers that were behaviorally informed to improve tax compliance in the nation. The number of taxpayers who filed returns on time increased by 20.8 percent as a result of these behaviorally informed letters. Another intriguing finding from this trial was that women responded to messages with a harder tone and a higher rate of repayment. Similar to Kenya, Kosovo, and many other African nations, these nations have tried behavioral economics' nudging notion and have seen greater results as a result.

 

It is crucial to strengthen Pakistan's tax system by removing the Statutory Regulatory Orders from tax collecting organizations. Some sectors and subsectors receive tax exemptions from these SROs.

 

Farmers in Pakistan should be assisted, but the agriculture sector should also be taxed. Landlords should also be subject to taxation. This basically means that provinces' ability to collect taxes needs to be improved. There should be some industries where the provinces are required to collect taxes, like services. It is noteworthy that, at the moment, some industries are subject to restrictions from both the federal and provincial governments. As a result, the provinces' ability to collect revenue in spirit suffers.

 

As a result, the current administration, which has been dealing with an unstable and ailing economy, has a huge opportunity to concentrate on policy related to nudging Pakistan toward tax policy. The government must compile information on businesses and enterprises that must pay taxes in this regard. To encourage and nudge the public to improve the tax system in this country, the government must start public service communications and use social media and other technological tools.

 

Initiatives like adjusting the tax codeundoubtedlysurely result in better and more productive outcomes for the nation's revenue. The government can reduce its revenue by influencing people's behavior, nudging government directives and actions, and engaging businesses and industrial units in nudging. This will help the country's tax policy be implemented effectively and give Pakistan's fragile economy some relief during its difficult and uneven times.