introduction

Pakistans tax to gdp ratio that is round about 10% is the lowest in the world.

All countries having tax ratio below 12%, Pakistan has ITC index greater than 0.9

Structural weaknesses of the tax system has hightened Pakistans vulnerability to economic shocks.

Average effective rate of duty on imports were 30% IN 1990-91 while the same is 6% in 2009-10

present tax structure of Pakistan is distortionary and incentivizing massive tax evasion.

Tax to gdp ratio can only be enhavced if all the sectors of the economy contribute proportionately.

education, health, infrastructure and other social programs are prerequisites for a stable economy and
for a stable growth process. To finance these public goods and services, tax revues are the common and
extensive part of govt. budget.

Simplicity in tax structure. Complicated tax structure lead to a trend of tax evasion that leads to revenue
loss that leads to increase in administrative burden.

Decrease in over all tax bracket and degree of progressiveness as well on personal income tax and
widespread adoption of VAT

It is a widely held belief that the welfare costs of resource misallocation (both intra and intertemporally)
increase with increased taxation.

Developed countries more heavily rely on the income tax revenues and less on trade while the situation
is reverse for developing countries, found by Howell 1996 (7% higher income and 23% less trade).

When economies are more open and less reluctant to trade, Easy to collect taxes (tariffs and
seigniorage) and hard to collect (value added and income).

Globalization is expected to be negatively correlated with the tax revenues (fiscal denominator) as ..
it was supposed that trade liberalization and trade openness may harm govt. revenues in the short term.

Variables

Tax to GDP ratio, Trade openness, political instability, institutional quality, govt.
exp. For enforcement, literacy rate, narrow tax base, foreign aid, tax exemptions ,
tax evasion, income inequality, agri GDP, share of manufacturing in GDP,
share of services sector GDP, exchange rate, money supply, inflation rate, remittances,
external debt, literacy rate, share of urban population,