Determinants of low tax revenue: A case of Pakistan

Abstract

Every citizen who have enough resources, which qualifies him/her to pay tax, is legally bound to pay taxes to the government. These taxes enables the government to provide the facilities of health, education, defense, justice and infrastructure to the citizens. But some of the countries are unable to collect enough taxes so bear budget deficit every year. This study focuses on determinants of the low tax collection in Pakistan over the time period of 2000-2020. The design of the research is descriptive in which tax collection as percentage of GDP is observed in different tenures of government in Pakistan from 2000-2020. Tax collection as percentage of GDP in other Asian countries (Bangladesh, Sirilanka, Maldives and Iran) is also observed and compared with ratio of Pakistan. The results are analyzed on the bases of the policies of the countries. The determinants of low tax collection are explained in brief on the bases of the above results and through the detailed study of different researches. The results showed that there are number of reasons which contributes towards low tax collection i.e. informal economy, tax evasion through non-registration, Benami accounts/ properties, Hwala/ Hundi and tax avoidance using the loopholes in the tax laws. Literature also showed that the root cause of all these determinants is vested interest of authorities, bribe and somehow the complex system of tax itself. Ensuring the law enforcement, transparency in the tax system and making the tax system easier can help to increase the tax revenue in Pakistan