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Pakistan’s Tax Gap: Estimates By Tax Calculation and Methodology

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Abstract

This report provides estimates of Pakistan’s tax gap by type of tax and describes the methodologies and data used to produce these estimates. A country’s tax gap is the amount of tax that goes uncollected due to non-compliance with the tax law. For estimation purposes, the operational definition of the tax gap is the difference between potential and actual federal tax revenue, where potential revenue is the amount of tax that the government would collect if everyone fully complied with the tax law. It is a simple matter to get actual tax collections by type of tax, so the trick to estimating a country’s tax gap is to obtain a reasonably accurate measure of potential tax revenue. Our basic strategy is to use micro-simulation models to estimate the potential revenues from Pakistan’s federal taxes of which there are only a hand full. Such modeling requires micro-economic data with information about the relevant tax bases and a tax calculator to simulate tax liabilities by type of tax. The advantage of this approach is the detailed information that it provides on the rate of compliance by type of tax which should be helpful in targeting scarce tax enforcement resources and in evaluating tax policy reforms.

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File URL: http://icepp.gsu.edu/sites/default/files/documents/icepp/wp/ispwp0811.pdf
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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0811.

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Length: 78 pages
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:ays:ispwps:paper0811

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Keywords: Pakistan; Pakistan Taxation; tax gap; non-compliance;

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References

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Cited by:
  1. Ehtisham Ahmad, 2010. "Why is it so Difficult to Implement a GST in Pakistan?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(Special E), pages 139-169, September.
  2. Ahmad, Ehtisham, 2010. "The political-economy of tax reforms in Pakistan: the ongoing saga of the GST," Discussion Papers 95948, University of Bonn, Center for Development Research (ZEF).
  3. Andrew Feltenstein & Musharraf Cyan, 2012. "A Computational General Equilibrium Approach to Sectoral Analysis for Tax Potential: An Application to Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1226, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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