It’s that time of the year again when people start compiling their financial statements and balance sheets to file their tax returns for the previous fiscal year. Sadly, only a tiny percentage of people in Pakistan file their taxes yearly in spite of paying various direct and indirect taxes all year round. The main reason for this is that most people in Pakistan still don’t know what income tax is, the importance it holds for the government to function, and their status as responsible citizens of the country. We’re here to answer what is income tax and share the benefits of filing your taxes every year.
What is Income Tax?
Since we’re emphasising the importance of paying income tax, it’s best to start with an explanation of what is income tax and how it is paid even before you’ve received your paycheque.
That’s right! Income tax is a tax levied by the government of the country that you are residing in, and it is imposed on all revenue-generating sources. Thus, whether you’re a salaried individual or a businessperson, you are liable to pay taxes on your income as per the standardised tax rates. This tax is then added to the public funds that are accessed by the government to maintain public facilities and the infrastructure of the country. The government also uses these funds to offer grants and subsidies and create better policies for the benefit of the people.
The funny thing is, for most salaried individuals, income tax is deducted even before the money is deposited into their account. Thus, you’re already paying the income tax each month. Filing your taxes is simply a means of registering this process officially. For businesspersons, it is their responsibility to quote how much they earn from their business and to pay taxes on their income accordingly.
Now, after explaining what is income tax, we’ll go back to the basics and give you some core reasons as to why you should be filing income tax returns every year. There are also several benefits of becoming a tax filer in Pakistan that you should consider while we’re discussing these reasons. Let’s begin…
The Importance of Paying Income Tax
As stated above, here are some fundamental reasons that emphasise the importance of paying income tax:
- Paying taxes is a civic responsibility
- Improves your chances of getting approvals for foreign visit visas
- Taxation helps reduce income gaps in society
- Taxes are the largest source of public funds
- Taxation revenues help formulate better future policies
A detailed explanation of each of these reasons for paying income tax is given below.
Paying Taxes is a Civic Responsibility
Pakistan is an Islamic Republic with a Muslim majority population that pays the mandatory Zakat and performs various other acts of charity throughout the year, as long as they have the means to do so, with full religious zeal and honesty. Sadly, due to a lack of awareness and other social factors, the same people fail to realise their civic responsibility and the importance of paying income tax by choosing not to file their tax returns.
In many cases, the reason isn’t limited to not knowing what is income tax, but also because they want to avoid the hassles associated with the process. Some are even unaware of the civic responsibility that makes it obligatory on them as a citizen of this country to not only pay their taxes but to officially register those taxes by becoming a tax filer in Pakistan.
The lack of awareness, in terms of how beneficial is it to become a tax filer and how it is every individual’s responsibility to become one, is why we have such a significant gap in Pakistan’s tax-to-GDP ratio. Regardless, one of the critical reasons for paying income tax remains that you should do so, purely because it is your responsibility as a Pakistani citizen and you owe it to Pakistan.
Improves Your Chances of Getting Approvals for Foreign Visit Visas
If you love to travel, this is one of the many reasons why you should file your tax returns every year. While you might see that the importance of income tax is somewhat undermined in Pakistan, the fact that you are a tax filer in your home country says a lot about you as a traveller. Many countries consider your income tax returns as a sign of reliability and responsibility, on the basis that if you are living honestly and responsibly in your own country, you will surely do so in theirs and will not try to cheat their system out of their due income.
Taxes are the Largest Source of Public Funds
From public schools to the road and transport infrastructure; all of the facilities provided by the government require adequate funding to initiate and operate. While the Pakistani government has outsourced many of its maintenance and infrastructural units to private firms, the government is still in need of funding to perform all of its functions. So, where does government funding come from? It comes from the taxpayers in a society.
Here, some people may argue that only a small portion of the society pays its due taxes while the rest gets to keep their income in its entirety. This scenario can drastically change if all of us live up to our responsibility of becoming a tax filer in Pakistan, freeing the government from seeking high-interest loans from external sources.
Taxation Helps Reduce Income Gaps in Society
We see the rich getting richer and the poor remaining where they are with no assistance being provided by the government to improve their standard of living. But, as mentioned above, taxes are the largest source of public funds, and therefore, the income gap in our society can only be reduced when the rich pay their taxes in full, giving the government sufficient resources to introduce subsidies and aid for the underprivileged in our society.
Taxation Revenues Help Formulate Better Future Policies
We all want a better future for ourselves and our children. We all want the government to formulate budget policies that help the country and its citizens as a whole. However, that’s only possible when the government has enough funds to spare for additional policies, subsidies, and welfare initiatives that can come together to improve the standard of living and the quality of life in Pakistan.
Consider the reasons above. Do they highlight the importance of income tax on an individual as well as a nationwide level? If yes, then consider becoming a tax filer in Pakistan. The process is simple and easy and can be completed using a step-by-step guide on how to become a filer online.
If you still have any questions and queries about what is income tax, reach out to us at blog@zameen.com, and we’ll get back to you with the answer shortly. Stay tuned to Zameen Blog for more posts related to laws and taxes in Pakistan.
