Abstract
This study analyzes the impact of tax policy reforms on the profits of banking sector. The empirical results of unit root and Augmented Dickey Fuller (ADF) test reveal that the data series of tax is positively skewed whereas data series of profitability is negatively skewed. The kurtosis value indicates that all the series are platykurtic. From the value of ADF statistics, it is evident that all the variables are non-stationery at log level and are stationary at their first difference. Granger Causality Test shows that profitability of banking does not granger because tax but tax granger cause profitability of banking which depicts that the change in tax rate affects the profitability of banking industries. The study finds that reduction in corporate income tax rates for banking sector has produced positive impact in shape of increased banking sector profits and assets during the period under review.
Highlights
Health of economy depends on factors like natural resources, human capital, good governance, institutions and prudent policies
From the value of Augmented Dickey Fuller (ADF) statistics, it is evident that all the variables are non-stationery at log level and are stationary at their first difference
The current study reveals that ongoing tax policy reforms initiative in the country produced mixed results as a whole
Summary
Health of economy depends on factors like natural resources, human capital, good governance, institutions and prudent policies. Pakistan: The prevailing taxation faced the problems like corruption, narrow tax base, high tax rates, smuggling, statutory regulatory Orders (SROs) culture, heavy reliance on withholding taxes, delayed refund payments, low salaries of tax officials and unfriendly behavior of tax collectors (Report of task force 2001, World Bank:2001). These factors reduced the tax collection and resulted in the loss of the credibility of tax machinery in the public. The government by realizing this need launched a survey for the documentation of economy in year 2000-01 mainly to enhance the tax base, revenue and to document the economy
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