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Using Microdata to Estimate Pakistan’s Tax Gap by Type of Tax

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  • Robina Ather Ahmed
  • Mark Rider

Abstract

This study provides estimates of Pakistan’s tax gap by type of tax. We adopt a bottom-up approach that provides detailed estimates of the tax gap by type of tax of the sort that are useful for tax administration. For fiscal year 2004–05, we estimate Pakistan’s federal tax gap to be about 40 percent of potential tax revenue. We estimate the tax gap for direct taxes to be about 60 percent of potential direct tax revenue and for indirect taxes about 25 percent of potential indirect tax revenue. Direct and indirect taxes account for about 30 percent and 70 percent, respectively, of actual tax collections. When potential tax revenues are used to measure Pakistan’s tax structure, the proportions are 45 percent and 55 percent, respectively. If the indirect tax system is more regressive than the direct tax system, then Pakistan’s tax system is less progressive in practice than by design.

Suggested Citation

  • Robina Ather Ahmed & Mark Rider, 2013. "Using Microdata to Estimate Pakistan’s Tax Gap by Type of Tax," Public Finance Review, , vol. 41(3), pages 334-359, May.
    • Handle: RePEc:sae:pubfin:v:41:y:2013:i:3:p:334-359
    DOI: 10.1177/1091142113475697
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    References listed on IDEAS

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    1. M. Ali Kemal, 2007. "A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan : Causes, Consequences, and Linkages with the Formal Economy," Microeconomics Working Papers 22200, East Asian Bureau of Economic Research.
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    3. Bushra Yasmin & Hira Rauf, 2004. "Measuring the Underground Economy and its Impact on the Economy of Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 9(2), pages 93-103, Jul-Dec.
    4. Zafar Iqbal & Sarfraz Khan Qureshi & Riaz Mahmood, 1998. "The Underground Economy and Tax Evasion in Pakistan. A Fresh Assessment," PIDE-Working Papers 1998:158, Pakistan Institute of Development Economics.
    5. Mehnaz Ahmed & Qazi Masood Ahmed, 1995. "Estimation of the Black Economy of Pakistan through the Monetary Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 791-807.
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    Cited by:

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    2. Estian Calitz, 2019. "Are the South African fiscal authorities serious about tax base broadening?," Working Papers 06/2019, Stellenbosch University, Department of Economics.
    3. Asif Razzaq & Rabia Nazir & Fareeha Adil, 2020. "Dynamic Relationship among Tax Evasion, Control over Corruption and Political Accountability: A Case Study of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 256-261.

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