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The Underground Economy and Tax Evasion in Pakistan. A Fresh Assessment

  • Zafar Iqbal

    (Pakistan Institute of Development Economics, Islamabad)

  • Sarfraz Khan Qureshi

    (Pakistan Institute of Development Economics, Islamabad)

  • Riaz Mahmood

    (Pakistan Institute of Development Economics, Islamabad)

Registered author(s):

    This paper assesses the size of the underground ~conomy and tax evasion in Pakistan for the period 1973-96. Using monetary approach, the results confirm the existence of large underground economy and higher tax evasion over the period under analysis. The overall underground economy has remarkably increased from 20 percent of GDP in 1973 to 51 percent of GDP in 1996. The evidence also suggests that the rate of growth in th~ underground economy has been higher than the rate of growth of the formal economy. The estimates of various component~ of the black economy indicate that incomes fr01TIunderground activities in the foreign trade tax sector have been higher than the domestic tax and non-tax sectors. Furthermore, total tax evasion has peaked from Rs 1.5 billion in 1973 to Rs 152 billion in 1996. Finally, the paper concludes that the loss of public revenues and the increasing demand on public services by underground activities are important contributing factors for the mounting fiscal deficit in Pakistan.

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    File URL: http://pide.org.pk/pdf/rr/RR158.pdf
    File Function: First Version, 1998
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    Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 1998:158.

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    Length: 24 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:pid:wpaper:1998:158
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    1. 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.
    2. A.R. Kemal, 1994. "Structural Adjustment, Employment, Income Distribution and Poverty," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 901-914.
    3. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(4), pages 423-39.
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