THE FACTORS INFLUENCING ON REVENUE GAP IN PAKSITAN

Abstract

Purpose The objective of this work is to determine the leading economic part which creates revenue gap in Pakistan Methodology & Design The study applied ARDL and bound testing method for co-integration to anticipate the long link between the variables. At the same time, ECM method is used to minimize the errors using short run dynamics of the system using data of 40 years from 1975-2015. run Findings The result shows that underground economy and inflation have a positively effect on gap, whereas External debt and imports effect negatively on revenue gap. revenue Recommendations There could be various possible ways to cut down these activities which must need strict measures such as: increase the number of legal documentation, strengthening the institutions, better governance, decrease the number of regulations which prohibit people to work formal economy, improvement in tax payer records, restrict smuggling through tariff rationalization or free trade is even better, and efficiency wages could be good to prevent people both from shirking on the jobs and taking bribe. The government of Pakistan should establish such an environment of taxes which reflects self- sufficiency. At the same time, effective supervision through legal changes in order to improve its integrity and efficiency collecting taxes should be enforced. Present Tax structure of Pakistan is very complexed. It should be made simpler. Education of tax payers through a well- integrated system of booklets, brochures and media campaign should be started. Foreign aid and external debt both make a budget. But external debt put negative impact on revenue gap. Others studies show in the on the bases to reduce the revenue gap and it helps to are that external debt put extra load an economy. Foreign aid play a positive role for encouraging the economic activity. Import has negative effect on revenue gap means that import will be increased so the revenue gap will be decreased. If Pakistan increases the custom duty and excise fees so Revenue gap will decrease involuntarily. If duty will be higher so importer will not buy the imported items. They will go on domestic products so it will also encourage the economic activities. Inflation has positive effect on revenue gap. If Inflation rate will increases so revenue gap will also increases because prices will be high of the products so purchasing power of the people will be reduced. People won’t buy those products whose prices will be higher, on that time government should take initiative and try to achieve low inflation rate because of this purchasing power of the people will be increased and revenue gap will be decreased.