Pakistan Tax Policy (PAT) Report Series
 
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Policy Paper 1: Short Term Options

This task will examine the most recent tax policy changes carried out in Pakistan , current trends in collections and the most important issues/ problems within the tax laws, and on the basis of extensive meetings with counterparts at the CBR and the Ministry of Finance several measures will be proposed for inclusion in the 2007-2008 Budget. The aim of the proposed measures will be to enhance revenue collections in the short term but reinforcing the long-term objectives of increasing the efficiency, equity and elasticity of Pakistan 's tax system.

Policy Paper 2: Review of Major Tax Instruments

The main objective of this task is to provide an in-depth review of Pakistan 's most important taxes. For each major tax, this study will provide a description of the present system and a review of the main issues and problems surrounding the tax. The review will match up each tax against the norms for “good” taxation, the best international experience, and against the goals of the Government. The criteria to be used in this evaluation of each tax include revenue performance, distribution of tax burdens, coverage of the tax base (horizontal equity, fairness), economic incentives and growth effects, and administrative efficiency and compliance costs. The study will also provide reform options for each tax.

Policy Paper 3: Federal Tax Gap Analysis

Although Pakistan 's tax system has undergone significant reforms over the last two decades, Pakistan 's tax system continues to under perform in some fundamental ways. Particularly, the challenge continues to be its ability to raise adequate revenues, mainly because the bases of the most important taxes, personal and corporate income taxes and the General Sales Tax (GST) continue to be very narrow and the level of tax evasion remains quite high. The task of this paper would be to thoroughly analyze the federal tax base and quantify the impact of compliance and exemptions on the tax yield by the type of tax and by economic sectors. Additionally, it would be important to identify selected tax policy changes and quantify the revenue impact due to the proposed changes through tax revenue simulation models for tax reform. Lastly, the report would provide a set of policy options and recommendations for the short, medium and long-term.

Policy Paper 4 and 5 Subnational Tax Reform Options: Balochistan (or the MWFP) and Punjab

A desirable task for comprehensive reform in Pakistan includes re-examining the current “Revenue Assignments” at the provincial and local levels to provide more tax autonomy as well as incentives to these sub-national governments to use the tax autonomy they already have in order to improve their revenue yield. Not only is there a need to tackle the vertical fiscal imbalance at the subnational level, but there is also a need to strengthen financial management and fiscal accountability of subnational governments to the public. At present the provincial governments have been assigned the following sources of revenue: the property tax, agricultural tax and professional tax, stamp duties, motor vehicle tax, and a variety of fees. Admittedly, some of these taxes are difficult to administer and may be particularly unpopular with taxpayers but their yield appears to be much below where it could be.

The task of these two policy papers would be to examine the current “Revenue Assignments” at the provincial and local levels in two provinces, analyze each subnational tax including all revenue sharing arrangements, review revenue yields and trends with emphasis on the current use of autonomic powers, and provide a set of policy options and recommendations to tackle the main issues related to subnational taxes and subnational fiscal performance.

Policy Paper 6: Enterprises – Taxation & Investment Climate

Another important performance criterion of a tax system is its relative efficiency, or to what degree it distorts the allocation of resources in the economy. The efficiency losses from taxation arise because some activities tend to be more heavily taxed than others are and consequently the allocation of resources gets distorted. In Pakistan , there are large differences in statutory tax rates and tax incentives resulting in large differences in the taxation of firm's capital investment across industries. The marginal effective tax rate (METR) ranges from 45 percent for investments in machinery for general companies not exempted from GST to 18 percent for public companies investing in land assets and exempted from GST. Additionally, there exists poor compliance and weak tax administration resulting in an additional challenge to the tax system. The task of this policy paper would be to further analyze corporate taxation in Pakistan , with an emphasis on compliance and efficiency in administration, and provide a set of options and policy recommendations to improve the efficiency in corporate taxation and in the entire tax system.

Policy Paper 7: Households – Tax Incidence Analysis

Two basic principles are generally used to judge how equitably tax systems perform. One is the principle of vertical equity or how tax burdens are distributed among tax payers with different levels of income, and it can be progressive, proportional, or regressive with respect to income. The second principle is that of horizontal equity in which taxpayers with the same income or tax base should pay equal taxes. In Pakistan , not much analysis exists with regards to tax burdens and household tax incidence. The task of this paper would be to perform a comprehensive tax incidence analysis of the entire tax system. Additionally, it would provide a set of policy options and recommendations in order to improve equity in the tax system.

Policy Paper 8: Review of Pakistan 's Tax Treaties

The main objective of this study will be to review Pakistan's current tax treaties, with particular attention given to the evaluation of the current double taxation treaties and analysis of the need for re-negotiation of treaties and/or additions to the list of treaty-countries.

Policy Paper 9: Comprehensive Reforms Options White Paper

There is increasing evidence that the present tax system can no longer serve the needs of the country. Pakistan 's economy has changed considerable over the last decade and its fiscal needs have also changed. The current tax system faces significant problems in revenue adequacy and the impact of the system on economic development and overall fairness. Over the years, a focus on piecemeal changes to the tax structure has introduced different sorts of distortions and has carried the system away from the desirable objectives and properties of a tax system. The main objective of this paper is to provide a comprehensive view for the reform of Pakistan 's tax structure by bringing together the individual analyses that examines the joint effects of the present system and of alternative reform packages.