Impact of Indirect Tax on Exacerbating Poverty in Pakistan; An Analysis from Shari’ah Perspective

Tax constitutes a major source of revenue to the Government for public spending. Among different types of taxes, indirect tax contributes a substantial part in the total revenue. There were more than 27 types of indirect taxes in India till July 2017. Further, the indirect tax system in India was very complex and cumbersome to comply with and resulted in disparity of prices of goods and services in different states. The introduction of goods and services tax, from 1st July 2017, is the single biggest indirect tax reforms undertaken since our independence to promote commerce and industry. Further, it brought all indirect taxes into one single tax to mitigate cascading or double taxation problems and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which was estimated to be around 25–30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would have a positive impact on economic growth. The objective of this paper is to study the related literatures on goods and services tax in India. It also aims to identify the problems in Goods and Services Tax system even after 1 year since it was implemented.

In this article, we reviewed the published Research works on indirect tax incidence, which describes the way of distributing indirect tax burden among households, and the purpose of this review is to identify the distributional impact of the burden of indirect tax on different groups, such as income groups, expenditure groups, commodity groups, and demographic groups, etc. The process of systematic review has been implemented in order to search, select, appraise, synthesize, and report the findings of previous studies. A government's revenue depends on several sources. Among them, indirect taxes are used as a major form of collecting government revenue, especially in developing countries. We observed major findings that there is a regressive type picture of the overall indirect tax system, which mainly impacts the vulnerable groups in a country. Indirect taxes will be paid by every household irrespective of income level. Even though the incidence theory of taxation describes the burden of indirect tax distributed among producers and consumers as per the elasticity of demand and supply, that would not happen practically. The imposition of indirect taxes leads to an increase in raw materials, then increase the cost of production and ultimately increases the price level of the country, which creates cost-push inflation. The entire portion of the indirect tax will be shifted to the end consumer. The increase in indirect taxes will be led to a rise in the tax burden on households. The burden of indirect taxation highly damages the living standards of the low-income groups in a country, especially due to the consumption tax. Households that are earning low incomes will be paid a relatively higher portion of indirect taxes than the households that have higher incomes. Past researchers have emphasized the importance of eliminating the consumption taxes on essential and most sensitive commodities, which are mostly consumed by the poor income groups.

The article examines the fiscal role of indirect taxes in the formation of state budget revenues. The peculiarities of indirect taxation in Ukraine, types of indirect taxes according to the current legislation are disclosed. Inflows to the state budget of indirect taxes were analyzed in terms of their absolute values, shares, and in relation to GDP. It was found that indirect taxes in the structure of the tax system of Ukraine are the main source, demonstrating high fiscal efficiency. The results of the analysis of the receipts of indirect taxes to the budget of Ukraine indicate that the key budget-forming tax is the value added tax, the second largest revenue is the excise tax, and customs duties occupy the third position in terms of revenue to the state budget. Therefore, indirect taxes in the structure of the tax system of Ukraine are the main source, demonstrating high fiscal efficiency, the reduction of their share in the structure of budget revenues in recent years occurred due to a full-scale invasion. In today’s conditions, tax reform should take place within the framework of a defined strategy, which will allow for a more reasonable modeling of the formation and forecasting of tax revenues to the budget, taking into account both indirect and direct taxes. It is important to emphasize the importance of consumption taxes as a key instrument of state influence on economic development, carrying out regulation by which the state contributes to the creation of competitive conditions in the domestic and foreign markets. This, in turn, contributes to the stimulation of business activity and the formation of added value, which is the basis of taxation of most types of taxes.

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.

In the context of the wave of anti-globalization, the rise of trade protectionism, and the trade friction between China and US, could China employ internal reform, such as fiscal and tax policy, to achieve the upgrading of firm export performance? Or rather, could tax relief provide Chinese firms a taxation-driving force for improving export performance? The discussion on this issue is of great practical significance.In view of this, based on the data of World Bank’s Chinese Firm Survey in 2005, supplemented by World Bank’s Chinese Firm Survey in 2012, this paper makes the first attempt to systematically explore the impact of tax burden on firm export behavior. Our main finding is that tax burden has a negative impact on firms’ export propensity, export scale, and export intensity. Furthermore, the negative impact mainly comes from VAT burden.The innovation and contribution of this paper are as follows: Firstly, to the best of my knowledge, this is the first paper to directly explore the impacts of different kinds of tax burden on firm export behavior based on the data of World Bank’s Chinese Firm Survey in 2005 and World Bank’s Chinese Firm Survey in 2012, which provides the micro evidence for verifying the substantial effect of tax burden on firm export behavior. Secondly, this paper compares the impacts of turnover tax（indirect tax） burden and income tax（direct tax） burden on firm export behavior, and finds that the negative impact mainly comes from turnover tax（indirect tax）burden, which indicates that tax structure biased toward direct tax is a better tax arrangement for export firms under the premise that the general target of taxation is determined. “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform” adopted at the Third Plenary Session of the Party’s 18th National Congress clearly put forward that we should “deepen the reform of taxation system, perfect the local taxation base, and gradually raise the share of direct taxation”. This paper provides empirical evidence for the rationality and necessity of this reform form the perspective of stabling foreign trade. Thirdly, to get to the bottom of the origins of the negative impact, this paper inquisitively explores which kind of turnover tax（indirect tax） burden has a substantial effect on firm export behavior by comparing the impacts of VAT burden, business tax burden and consumption tax burden, and finally finds that VAT burden has the strongest negative impact on firm export behavior, followed by business tax burden and consumption tax burden, or rather, the negative impact of turnover tax burden on firm export behavior mainly comes from VAT burden. Fourthly, this paper supplements the empirical study on firm export mode by comparing the impacts of tax burden on firm direct export and firm indirect export, and finds that tax burden mainly affects indirect export. Fifthly, this paper makes the first attempt to explore the channels through which tax burden affects firm export behavior in detail, and thus systematically gives an answer to the question that how tax burden affects firm export behavior.

The purpose of this paper is to introduce the gender dimension into the analysis of tax incidence in Argentina. To that end, the impact of direct and indirect taxes on income and distribution by gender is calculated to establish the progressivity of taxes and the effects on gender equity when household classifications are analysed. The findings show that while the tax system is moderately progressive and the heaviest burden falls on households with male breadwinners, differences emerge when the impact of indirect and direct taxes is considered separately. The indirect tax system is heavily regressive and female-breadwinner households bear the largest burden, since they are concentrated in the lower income brackets. Households with children bear the highest direct tax burden, particularly male-breadwinner and dual-earner households.

This study investigates the determinants of poverty in Pakistan from 1985 to 2023, focusing on unemployment, inflation, indirect taxes, secondary school enrollment, and total population as key variables. Employing the Augmented Dickey-Fuller unit root test, the analysis finds that while many variables exhibit non-stationary behavior at levels, they become stationary at first difference, ensuring the reliability of time series analysis. The ARDL Bounds Analysis confirms the significant relationship between poverty and its predictors, indicating that changes in these variables markedly impact poverty levels. The estimated long-run and short-run results highlight the significant roles of inflation, secondary school enrollment, total population, and unemployment in influencing poverty, with diagnostic tests affirming the model's robustness. The study underscores the positive relationship between secondary school enrollment and poverty reduction, advocating for increased investment in education. The analysis reveals that indirect taxes do not significantly impact poverty levels, yet suggests a review of the tax structure to ensure it does not disproportionately burden low-income households. A progressive tax system could aid in wealth redistribution and support poverty reduction efforts. The positive correlation between total population and poverty levels indicates that rapid population growth strains resources and infrastructure, highlighting the need for effective population management strategies, including family planning programs and investments in healthcare and education. Unemployment's significant impact on poverty calls for targeted interventions to create job opportunities. Policymakers should promote economic diversification, support SMEs, and implement active labor market policies such as job training and placement programs. While higher inflation rates are associated with lower poverty levels in this analysis, maintaining inflation within a manageable range is crucial to avoid eroding purchasing power and harming economic stability. The study advocates for continuous and comprehensive data collection to enable timely and evidence-based interventions, enhancing the effectiveness of poverty reduction strategies. Prioritizing inclusive economic growth, fostering an environment conducive to investment, innovation, and entrepreneurship can create jobs and reduce poverty, ultimately supporting sustainable socio-economic development.

Goods and Services Tax (GST) comes under Indirect Tax regime covers whole of India replaced various indirect taxes levied by the Central and state governments. The GST is governed by GST Council and its Chairman is Union Finance Minister of India “GST is not a tax reform in true sense, but it is a major business reform which will change the way business activities are carried in the country. The dual structure of GST is the fundamental character of our country and therefore a single GST across the country is not possible in true sense under GST ,the taxpayer will be ease the burden of taxpayers to deal with multiple indirect taxes as under present Indirect system but GST will cost high compliance burden on the taxpayers requiring a registration in every state from where taxable activities are carried out but it would definitely reduced cumbersome documentation and save time. This research Paper discuss about the biggest step taken in indirect tax system that is GST and challenges in implementation. The paper aims to show that GST is a merely a Business reform, not a uniform tax system.

After four decades of rapid, inclusive growth averaging 6.4% pa since 1970, due to successful transformation of the economy from agriculture to a modern and open economy, Malaysia needs to embark on painstaking reforms to launch its trajectory to a higher growth path. Malaysia has a lower tax burden when compared to most G8 and BRIC economies. It collects about 16.9% of GDP in tax revenues, compared with the OECD average of 34.3% in 2016 (OECD, 2015). Among the urgent reforms are taxes which need a restructuring from direct and commodity taxes with overdependence on oil and gas to a more diversified tax base. Its tax dependence on the oil and gas sectors for revenue reached a 41% high of GDP in 2009, before settling to 14% with the introduction of GST/SST. The long-run elasticity of tax burden is -0.25, which implies that GDP growth will be reduced by 0.25% for every 1% increase in tax burden, compared with -0.27 for OECD countries (Arnold, 2012). In general, taxes are negatively correlated with economic growth, even after taking into account the different types of taxes. The structure of taxation showed that GST is most sensitive to economic growth and has the highest impact. Among taxes, GST, PIT and CIT are negatively correlated to growth whereby for every 1% increase in taxes, economic growth will be reduced by 0.17%, 0.06% and 0.06% respectively. PROTAX and OTHTAX are positively related to GDP growth. Tax reforms are needed to broaden the overall tax base, resize the sources to uncover additional resources to fund needed programs for inclusive growth. Over the medium time-span, it is important that the government focus on strengthening its tax collection administration to cut off leakage and in reducing the number of tax exempt items, inevitably looking into indirect taxes and a broader tax base to contribute to a progressive income tax system in its tax reform agenda.

This research discusses the possibility of harmonizing indirect consumption tax system in the ASEAN member countries, inter alia, Indonesia, Vietnam, Malaysia and Singapore with three principal goals: (1) to explain the provision of indirect consumption tax system in that four countries, (2) to describes the process of indirect consumption tax system in the EU, and (3) to analyze the alternative of indirect consumption tax system in the ASEAN member countries. In order to encourage the operational of AFTA aiming at the free movement of goods and services within this region, indirect consumption tax becomes important phenomenon to talk about because despite her contribution to the state revenues, this kind of tax may conctitute an obstacle of this crossborder free movement of goods and services. To overcome this problem, with the reference of what has been done in the European Union, it appears that it is the appropriate time to discuss the harmonization of indirect consumption tax. However, it is no doubt that some problems may arise due to the differences in the applicable law of each country, including rates, and formal law as well. Furthermore, the different in administrative systems may also lead to difficulties in administering the tax and control over tax harmonized system. The introduction of a single standard rate and an acceptable ”uniform system” become issues to be much discussed, especially related to revenue, uniform model policy and implementation, including mechanism to minimize tax fraud.

This paper proposes a methodology for testing for whether tax reforms are pro-poor. This is done by extending stochastic dominance techniques to identify tax reforms that will be deemed absolutely or relatively pro-poor by a wide spectrum of poverty analysts. The statistical properties of the various estimators are also derived in order to make the method implementable using survey data. The methodology is used to assess the pro-poorness of possible reforms to Mexico’s indirect tax system. This leads to the identification of several possible pro-poor tax reforms in that country. It also shows how the pro-poorness of a tax reform depends on one’s conception of poverty as well as on the revenue and efficiency impact of the reform.

ABSTRACTIn this paper, we develop a multi-sectoral computable general equilibrium tax model for Italy allowing for a number of fiscal tools. We illustrate the methodology for modelling and accommodating the full range of direct and indirect taxes into the national general equilibrium model. In particular, we build a commodity tax matrix by commodity, source, user and tax type; and a production tax matrix by industry and tax type. We also put a special emphasis on the institutional sector accounts, incorporating a detailed system of equations. Our model provides a powerful tool for acquiring new insights in fiscal policy analysis, through the assessment of tailored tax reforms, which can consist of either changes in tax rates and tax bases for indirect and direct taxes. Finally, to validate the model we perform an equalizing Value-Added-Tax rates reform. We find that a budget-neutral uniform tax rate reform would be GDP and welfare improving. However, results across agents and sectors vary.

Research topics: I think the Korean tax history is of great practical significance as we realistically carry out tax or tax administration. Whenever we encounter various difficult tax or cleaning problems, large and small, we take a step back and eventually rediscover that it is a historical problem in the past history. This study aims to study the fiscal and tax reforms at that time, focusing on the establishment of the government and the period from 1948 to 1960, before and after the Korean War. Research background: The Korean economy, which had been moving toward economic stability and balanced finance since the establishment of the Korean government, unexpectedly encountered the Korean War, frustrating all stability and growth development policies and forcing a new exhibition system. According to the basic structure of tax administration after the ceasefire, the government implemented an indirect tax-centered tax system by lowering the overall tax rate from the wartime tax system to the usual tax system, promoting capital accumulation, suppressing consumption, and simplifying tax administration to avoid friction with taxpayers. Only when we understand the implications of real taxation and tax administration issues that have been developed throughout history for the coming history will we be able to have a historical consciousness of our mission. Differences from prior research: Among Korean tax history, this study studies the establishment of the Korean government in 1948, the Korean War from 1950 to 1953, and fiscal and tax reforms from 1954 to the April 19 Revolution in 1960, which is different from previous Korean tax history studies. Research method: Focusing on literature research methods among social science research methods, this study studied and drew implications for fiscal and tax reforms from the establishment of the government in 1948 to the Korean War and ceasefire, and 1960. Research results: At the same time as the establishment of the Korean government on August 15, 1948, the military government budget was finally settled at the end of September of that year, and the independent government's fiscal policy was implemented from October 1. The government set economic stability and industrial revival through inflation as economic policy goals, and as a result, tried to realize a balanced budget. Since the foundation of the country, the Korean government has inevitably expanded expenses due to emergency projects such as securing security, strengthening national defense, increasing electricity and food production, and implementing compulsory education, making it impossible to establish a balanced budget. Recently, the public is dissatisfied with the level of tax burden and tax and tax administration. As such, when grasping the current level of tax burden in Korea and how tax and tax administration issues are thrown before us throughout the history process so far, we will be able to find the basic direction of solving the problems of tax burden and tax administration. Contribution points and expected effects: Recently, public dissatisfaction with the level of tax burden and tax and tax administration is high. As such, when we grasp the level of tax burden and how the current tax burden and tax and tax administration issues in Korea have been thrown before us so far, we will be able to find the basic direction of solving the problems of tax burden and tax and tax administration. We will be able to have a historical consciousness of our mission only when we find out what the real tax and tax administration issues that have been developed throughout history mean for the future history.

Анализа фактора који детерминишу пореске реформе у Босни и Херцеговини показала је да Босна и Херцеговина може спроводити само парцијалне пореске реформе, јер сложена фискална архитектура БиХ и подијељене надлежности за индиректне и директне порезе између нивоа власти отежавају имплементацију свеобухватних пореских реформи које би се заснивале на балансирању политике директних и индиректних пореза. Реформе у сфери индиректних пореза су нужне због испуњавања обавеза из acquis-a. Рад има за циљ да презентира смјернице за усклађивање политике индиректних пореза у БиХ са стандардима Европске уније које могу допринијети економском расту БиХ. Анализа правног оквира за опорезивање акциза и ПДВ-а у ЕУ, добре праксе чланица и реформи индиректних пореза које спроводи ЕУ и компарација са Законом о ПДВ-у у БиХ показале су да је могуће имплементацијом политике малих интервенција и финог подешавања система индиректних пореза у БиХ процес европских интеграција искористити за одржавање пореске конкурентности БиХ у односу на окружење, побољшање ликвидности и конкурентности домаћих компанија, теза стварање повољнијег економског амбијента за пословање малих и сред-њих предузећа у БиХ.

The Australian Bureau of Statistics provides a breakdown by industry of the revenue collected from each of the major indirect taxes in Australia. This information does not show who bears the ultimate burden of indirect tax as each industry may pass on its initial burden to others. Thus, the burden of the tax may be passed on round by round to indirect business purchases and final demand until the total burden of the tax is passed onto the final consumer. Using a method to derive final indirect tax incidence developed from earlier studies, the final incidence of a selection of indirect taxes in Australia is presented. The major innovation is to include the use of margin industries in the initial flows of the input‐output matrix ensuring that taxes on inputs to margin services are fully passed forward onto the good or service that the consumer purchases. It is found that many goods and services that are initially exempt from the main indirect taxes, such as the wholesale sales tax, have significant effective tax rates once taxes on inputs to industry are taken into account.