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m Fluctuations in the economic activity are
the characteristics of all the economies of the
world. Therefore every developed and
underdeveloped economies aspires to certain
goals. These goals include economic
development. some polices are devised to
achieve these goals and similar other goals. In
this article we will analyze views & effectiveness
of taxation in development of our beloved country
Pakistan.
Tax has an extremely long established
history. The ancient Egyptians appointed Tax
Masters who increased the burden on the children
of Israel - slaves under Egyptian domination. In
Islam the concept of tax was introduced by Hazrat
Umer (R.A) Who imposed tax on the extra income
of fisher man from Umber. Hazrat MUHAMMAD
(S.A.W.) said that my companions are like stars if
you will follow them you will be successful. As
Hazrat Umer (R.A.) was one of the dearly loved
accompanying person, so from Hades we can
understand that Islam has allowed for tax.
As a general rule, tax is the source that is
best exploited by government. It is imposed on
individuals and companies to finance services that
the state is obligated to provide and to meet its
goals on extremely rare occasions, government
has used sources other than tax for instance
income from natural resources, public debt, deficit
financing etc. measured as percentage of GDP it
was 10.1% in 2007-08. On the other hand in
developing countries like USA and UK it was 25%
to 30%. Out of which indirect and direct tax
revenue were 98.3% and 31% respectively.
However as a common rule most government use
the collection of taxes as the main tool for
financing their expenses. Tax is divided in to
two main categories progressive and regressive
taxes. Progressive tax is graduated and its rate
varies according to the taxpayer income, whereas
regressive tax is a tax at a fixed rate irrespective
of the taxpayers income.
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m One of the most commonly discussed
issues in economics is how tax rates relate to
economic growth. Advocates of tax cuts claim that
a reduction in the tax rate will lead to increased
economic growth and prosperity. Others claim that
if we reduce taxes, almost all of the benefits will
go to the rich, as those are the ones who pay the
most taxes. What does economic theory suggest
about the relationship between economic growth
and taxation? In studying economic policies, it is
always useful to study extreme cases. Extreme
cases are situations such as "What if we had a
100% income tax rate?", or "What if we raised the
minimum wage to 8000 Rs. per month?". While
wholly unrealistic, they do give very stark
examples of what direction key economic
variables will move when we change a
government policy.
First suppose that we lived in a society
without taxation. We'll worry about how the
government finances its programs later on, but for
now we'll assume that they have enough money
to finance all the programs we have today. If there
are no taxes, then the government does not earn necessary functions for the government to
any income from taxation and citizens do not perform these three things a government must
spend any time worrying about how to evade provide
taxes. If someone has a wage of 8000 Rs. per
month then they get to keep those 8000 Rs. If m —
—m To protect against foreign
such a society were possible, we can see that invaders.
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 To protect against
people would be quite productive as any income
domestic criminals.
they earn, they keep.


To settle honest
Now consider the opposing case. Taxes are now
set to be 100% of income. Any rupee you earn
goes to the government. It may seem that the
government would earn a lot of money this way,
but that's not likely to happen. If I don't get to keep
anything out of what I earn, why would I go to
work? I'd rather spend my time reading my
favorite book or playing cricket. In fact, going to
work would risk my ability to survive. I'd be much
better off spending my time trying to come up with
ways to get the things I need without giving them
to the government. I'd spend a lot of my time
trying to grow food in a hidden garden and
bartering with others for the things I need to
survive. I wouldn't spend any time working for a
company if I didn't get anything from it. Society as
a whole would not be very productive if everybody
spent a large portion of their time trying to evade
taxes. The government would earn very little
income from taxation, as very few people would
go to work if they did not earn an income from it.
Obviously, government programs are not
self-financing even an ardent supporter of
unrestricted capitalism realizes that there are
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disputes that arise and to punish criminals
according to objectively predefined laws.
Without the last two functions of government, it is
easy to see that there would be little economic
activity. Without a police force it would be difficult
to protect anything that you've earned. If people
could just come by and take anything you owned,
we'd see three things happen:
1.m People would spend a lot more time trying to
steal what they need and a lot less time trying
to produce what they need, as stealing
something is often easier than producing it
yourself. This leads to a reduction in
economic growth.
2.m People who have produced valuable goods
would spend more time and money trying to
protect what they've earned. This is not a
productive activity; society would be much
better off if citizens would spend more time
producing productive goods.
3.m There would likely be a lot more murders, so
the society would lose a lot of productive
people prematurely. This cost, and the costs
people incur in trying to prevent their own
murder greatly diminishes economic activity.
A police force which protects the basic human
rights of citizens is absolutely necessary to insure
economic growth.

The role of taxation in the development
strategy of our beloved country Pakistan has to be
viewed in the background of the functions which a
taxation system performs. The primary function of
a tax system is to raise revenue for the
government for its public expenditure. So the first
goal in the development strategy as regards
taxation policy is to ensure that this function is
discharged adequately. Second is to reduce
inequalities through a policy of redistribution of
income and wealth. Higher rates of income taxes,
capital transfer taxes and wealth taxes are some
means adopted for achieving these ends. Other
function which taxation system performs is to
ensure economic goals through the ability of the
taxation system to influence the allocation of
resources, and to increase the level of savings
and capital formation in the private sector partly
for borrowing by the government and partly for
enhancing investment resources within the private
sector for economic development. Protection of
local industries from foreign competition through
the use of import duties, turnover taxes/VAT and
excises is also one of the main functions of
taxation system. This has the effect of transferring
a certain amount of demand from imported goods
to domestically produced goods.mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
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The phenomenon of tax does not exist in
vacuum or otherwise it isn¶t something that is
abstract. Tax and death are two true of universe.
Since an adequate volume of government
revenue is essential for publie expenditure and
economic growth the ratio of tax revenue to GDP
has been used regularity to measure and judge
the success of a country¶s fiscal management.
Unfortunately, in our dearly loved country
Pakistan unplanned & ad hoc tax holidays &
incentives, narrow tax base & inadequate
coverage, lack of elasticity & buoyancy in tax
system, periodic tax amnesties, administration
weakness, unawareness of tax payer, are the
main reasons for the decline of tax revenue. That
leads to dawdling of development and economic
growth.
Pakistan like all other developing countries
need sustainable growth & development with their
cheapest and most reliable sources of revenue.
Being tax revenue several problems have been
identified with mobilizing tax revenue for
development they must be addressed. Though
there is nothing basically wrong with the tax
system, there are problems with enforcement and
compliance with the tax laws, according to our
point of view if our government takes steps to
overcome these problems we will also be one of
the developed nations of this world.
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