Yet again we have a new controversy brewing where supposedly the World Bank is advising the government that in order to avoid undesired consequences it should by pass the parliament to pass the new proposed finance bill that aims at creation of Inland Revenue Services (IRS) in the FBR (Federal Board of Revenue) by the Establishment Division, i.e. as agreed between Pakistan and the World Bank in July 2009 at Istanbul. The agreement actually points towards larger tax reforms to come up with a master ordinance that in-turn harmonises separate ordinances of Income Tax, Sales Tax and Federal Excise Duty. The idea is that apart from cosmetic changes pertaining to names, ranks and appointment mechanism, the new reforms will not only up-date the new system with global practices, but will also improve institutional efficiency by integrating functions, instruments, procedures and responsibilities irrespective of the tax types. However, taxation is an extremely sensitive and touchy subject in Pakistan, whether seen from the perspective of the taxpayer or the tax collector. In this case the main resistance is coming from the tax collectors. On the other hand, from the taxpayers perspective the main concern about the prevalent tax regime sparks from a system that leaves a progressive middle class earner short by more than twenty percent of his earnings and benefits by simply adding value of a few hundred rupees to his earnings basket - Wrong signals in a country that desperately needs to boost its middle classs consumption capacity The focus being on this growing problem for benefit recipients - the combined impact of taxation and the withdrawal of benefits can be a deterrent to finding work or earning more money. According to an estimate, almost half of working professionals in Pakistan face the marginal tax rates of more than 60 percent and the other half of more than 90 percent. Also, according to a multinational firms survey, once pass ported benefits such as free school, meals and healthcare points are taken into account marginal tax rates in certain cases can exceed 100 percent. The case becomes serious, as the problem of marginal tax rates seems to be increasingly affecting particularly the bottom end of the spectrum. Meaning on a marginal tax rate basis rich are paying less and less, whereas, the burden on the poor is increasing - the thriving culture of reliance on enhanced indirect taxation is not helping either and in fact spreading the burden on a segment with the lowest capacity to pay. On the other hand solving the problem of high marginal tax rates for low earners is likely to be very tough, because in order to do successfully, (a) the tax to GDP ratio needs to be increased through bringing more direct taxpayers under the net rather than relying on taxing public indiscriminately (regardless of their income levels and propensity to pay) and (b) the government also has to learn to do away with the temptation of having access to easy money. This means that as tax income from direct taxes grows the indirect burden should side by side be reduced accordingly. However, historically we have seen that governments appetite for funds grows and not shrinks over time and, therefore, they are rarely seen to voluntarily give up revenue sources. Also, to reduce marginal tax rates would mean correlating benefits to unemployment and given the delivery track record of Pakistani governments thus far, the state inspires no confidence in an individual that he/she should start paying taxes when employed to secure a bright future for oneself, family and the society at large In fact most of our taxpayers have reached a stage where they have zero expectations on reciprocity from their government for the revenue they contribute. If the government has to truly look for enhanced tax revenues, it has to first improve its own transparency and credibility and then embark on winning the hearts and minds of its taxpayers, so that they can actually believe that by paying taxes to the government their pay-outs will not go to waste and that they will also get something in return. Further, the present tax system and culture, which is rotten with inefficiency, corruption and coerciveness, will need to be completely overhauled. Changing the system without a visionary and competent leadership that properly understands 'change management, may not be possible. In Milton Friedmans words, Complexity in the benefit or tax system exists because the government can be trying to achieve complicated things without first learning about the problem and without first putting its own house in order.