Tax Policy of Pakistan: A Review Paper

Reforming Pakistans Tax Policy is one of the key instruments to make URAAN Pakistans goal of a trillion-dollar economy happen through internal resource mobilization. It is widely discussed that Pakistan`s tax policy suffers from a narrow base, relying heavily on regressive indirect taxes while elites evade payments. Weak enforcement allows widespread informality (50 percentof GDP) to escape taxation. Complex federal-provincial overlaps and frequent ad-hoc changes deter compliance and investment. Low progressivity (only 2 percentfile income tax) worsens inequality instead of redistributing wealth. Given such limitations of tax system, there is a dire need for conducting a study to gather evidence based on widespread literature available for Pakistan`s tax policy. The underlying piece of research maintains focus on two objectives: (i) evaluating the Pakistan`s tax system whether it is effective and flexible through a comprehensive literature review, and (ii) to reveal the contributions and research gaps by local researchers and organisations. The overall findings of the all- reviewed research papers demonstrate that in the short run, the estimates of elasticity and buoyancy were greater than unity for overall taxes and tax heads. Nonetheless, in long- run, all estimates went declining and characteristics of the system to work automatic stabilisers failed to work. Due to the system`s inability to respond positively and lowering resilience power, the country drowned in the vicious trap of debt and unsustainable economic growth.