Page 40 - CMA Journal (Nov-Dec 2024)

Focus Section

Modernizing Pakistan’s Tax System

Through Automation

As economies advance, traditional tax administration Challenges in
methods struggle to keep up with the increasing Pakistan’s Tax
complexity of transactions and compliance requirements. System
Tax automation has emerged as a vital solution for
modernizing tax systems, enabling faster processing, 1) Low Tax-to-GDP
greater accuracy, and enhanced transparency. Ratio: Pakistan’s
tax-to-GDP ratio
Governments worldwide are integrating technologies
remains low
such as artificial intelligence (AI), machine learning,
blockchain, and robotic process automation (RPA) to compared to regional
streamline tax collection and compliance. Successful peers, fluctuating
initiatives like the United Kingdom’s Making Tax Digital between 9% and 10%. Muhammad Ammad
(MTD) and Brazil’s electronic invoicing system have The narrow tax base Ansari, ACMA
significantly reduced errors, strengthened compliance, and heavy reliance on Manager Litigation and Audit
and increased revenue collection. indirect taxes restrict Sui Southern Gas
fiscal space and Company Limited (SSGCL)
For businesses, tax automation reduces manual
hinder economic
workload, minimizes errors, and ensures real-time growth.
compliance with evolving regulations. Cloud-based
platforms and AI-powered reporting tools are 2) Tax Evasion and the Informal Economy: A
revolutionizing tax management, making it more significant portion of Pakistan’s economy operates
efficient and cost-effective. However, tax automation also informally, remaining outside the tax net. Many
presents challenges, including data privacy concerns, businesses remain unregistered with the Federal
cybersecurity risks, and the digital divide between Board of Revenue (FBR), and individuals frequently
developed and developing nations. To fully capitalize on underreport income to evade taxes. This results in an
automation while mitigating these risks, collaboration
uneven tax burden on the formal sector,
between policymakers and businesses is essential.
discouraging compliance.
Automation holds the potential to transform Pakistan’s
3) Complex and Ambiguous Tax Laws: Frequent policy
tax system. By leveraging AI, data analytics, and changes and intricate regulations create uncertainty
blockchain, Pakistan can enhance tax compliance,
for businesses and taxpayers. The overlapping
minimize revenue leakages, and create a more efficient jurisdictions of the FBR, provincial revenue
and transparent tax administration framework. However,
authorities, and the Securities and Exchange
successful implementation requires legal reforms,
infrastructure development, and strong political Commission of Pakistan (SECP) further complicate
compliance, leading to increased litigation and
commitment.
disputes.
In recent years, Pakistan has introduced several tax
reforms aimed at increasing revenue collection, improv- 4) Weak Enforcement Mechanisms: Despite existing
ing compliance, and expanding the tax base. Yet, struc- tax laws, enforcement remains ineffective due to
tural inefficiencies, a large informal economy, and inefficiencies, corruption, and a lack of coordination
persistent tax evasion remain key challenges. Embracing among revenue authorities. Manual processes and
automation and digitalization presents a crucial opportu- outdated systems heighten the risk of manipulation,
nity to improve efficiency, curb revenue losses, and foster inefficiencies, and revenue losses.
greater transparency in tax collection and administration.

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