Page 21 - The Pakistan Accountant

O THER AR TICLES saved and reinvested in the system. If saved and reinvested it will again generate a cycle of economic activity leading to more tax collection. If government is in need of any portion of this saving, it can take the saving from people but not in shape of additional tax which will wipe their saving capacity and morale. Government should collect it in courteous manner like investment schemes or loans etc. Let people have a reasonable share of their own incomes! On the other hand, what government collects as tax is ultimately in use of individuals of that governorate in shape of welfare, security etc. Therefore, we can say tax is not depriving one of one’s income; rather it is payment for some most important consideration. This example is a very simple description just to get a point. The real economic situations are complex and involve multidimensional reviews having lots of variables and fixed components and statistical analysis. God willing more complex transactions could be discussed later on some time. Let’s move to another important factor in taxation and that is to understand that ultimately individual is the holder of income and bearer of expense. Establishment of businesses is a source/platform/stimulus for economic activity and employment. Individual- whether entrepreneur or employee etc. is the ultimate holder of income and liable to tax. All other taxes and levies are intermediary/non- final with but ultimate effect on individual. On this premise, business tax should be lower than the individual tax, provided individual income should be enough for spending a reasonable life with all necessities. However, there should be a total cap of overall taxes (direct and indirect) imposed in the system. Let the businesses grow and get more taxes from individuals! Indirect tax should be lower as its affect is same across all income groups. While direct taxes rates should be high and proportionate. Infrastructure taxes are direct somehow. Taxes imposed at geographical boundaries at entrances and exits are generally termed as customs. Customs have impact on businesses but its ultimate impact is on individual in the shape of high/low product or service price. Customs along- with other tax measures are important tool to protect local businesses as well. Withholding of taxes at sources could be a technique but its purpose be understood. At source with- holding of tax (either direct or indirect) is to be used, ideally, as a documentation tool and as indication for a person’s income and expenses which could be used as corroborating evidence. Otherwise, if full tax is deducted at source then The Pakistan Accountant | Apr-Jun 2014 19