Taxation and poverty are the hottest topics of financial systems especially in the economy of Pakistan. A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures. . Taxes are imposed almost in every country of the world. In modern economics, taxes are the most important source of Government Revenues. In Pakistan, the taxation system is very complex, which includes more than 70 different taxes and about 37 different government agencies which administer this tax-system. Among nearly 10 million registered persons to pay, only 1.9 million people actually pay the taxes. It was reported that Pakistan is one of the developing countries where a small number of persons pay tax. This is the reason that tax-to-GDP ratio is very low in Pakistan.
Poverty has made the people and families to live without proper housing, healthy food, clean water, medical facilities, etc. Each nation may have its own threshold that determines how many of its people are living in a state of poverty. They do not have either enough money to fulfill the basic necessities. Hence, the poverty is the state of being poor. Pakistan is a low income developing country. From the last three decades Pakistan has experienced the issue of poverty. The main reason of this issue is based on the basic structural characteristics of the economy. The economic policies play an essential role in making the solid changes of economic structure. The main obstacle in achieving favorable growth-rate of per capita income and reduction in poverty is due to certain factors such as lack of employment, productive assets, social-welfare, education, health, shelter, etc. According to latest poverty data, 24% of population of Pakistan lives below the national poverty line. It includes 31% rural poverty and 13% urban poverty.
The tax systems in the developing countries are dominated by indirect taxes that cannot be imposed or levied directly on the individuals. Such type of taxes mostly depends on the goods and services which are consumed by the people. It is very difficult to make these taxes progressive because all the people either rich or poor consumed somehow similar goods. The impact of the income tax on the overall poverty rate was larger than the impact of many needs-tested benefits programs targeted toward the poor.
The writer is student at SZABIST Islamabad