Comparing the Destination Principle and Origin Principle in Sales Tax: Implications for Pakistan's Tax System

Abstract

This study evaluates the influence of destination and origin principles on the tax system of Pakistan. This study examines destination and origin concepts, terminology, and the VAT system. This report comprehensively examines literature, data, and case studies to evaluate the appropriateness of these approaches for Pakistan's tax system. Sales tax is levied based on the destination principle, whereby it is determined by the location of the eventual user rather than the producer. The origin principle imposes sales tax based on the location where goods or services are produced or rendered. To comprehend the practical implications of these principles, it is essential to compare and contrast the concepts of "sales" and "supply".
The legal definition of "business" impacts sales tax in various transactions. Comprehending zero-rated supply is essential due to its influence on the tax liability of different goods and services. The excise tax is a component of the sales tax in Pakistan. Excise duty is levied on domestically produced, imported, and sold goods within the nation. The responsibility for liability lies with either the manufacturer or importer, depending on their manufacturing capacity or the specific items involved. Furthermore, the paper examines the concept of value-added tax (VAT). Producers improve raw materials prior to selling the end product or service. The Value Added Tax (VAT) system effectively captures value addition at every stage of production, thereby improving efficiency and eliminating biases in production choices. This study examines the difficulties encountered by small traders and retailers within Pakistan's tax system, specifically in relation to sales tax. An efficient tax system requires improved tax administration and voluntary compliance. Comparing sales tax principles is beneficial for tax policymakers in Pakistan. It facilitates comprehension of the pros and cons associated with each concept, enabling well-informed choices regarding tax systems to attain economic objectives and generate income. The report encompasses pertinent literature and legal obligations pertaining to the tax policy discourse in Pakistan.