The Weight of Tax Revenue in the Pakistan Economy

Abstract

This paper provides a general review of taxes in Pakistan with special reference to central government tax efforts. The weight of central taxes in national income and in the central budget is analysed using the tax data for the period 1948-62. Some suggestions are made about mobilizing more savings by raising tax revenues. The Case for Raising the Weight of Tax Revenue In the developing countries, we usually find a fiscal system where the relative weight of the public revenues in the total economy is meagre and limited to certain sectors. This state of affairs tends to make fiscal policy weak as well as blunt. As increasing the effectiveness of monetary policy in underdeveloped countries presupposes organization and wide dissemination of monetary institutions, so a prerequisite for an efficacious fiscal policy is enhancement of the influence of taxes in the economy1. Enhancement of the relative importance of taxation in the economy is essential for a number of reasons. First, the governments of the developing countries have to finance increasingly larger development programmes. The safe way to acquire the necessary resources is through taxes, as supply rigidities make flirtation with inflationary finance a dangerous game8. Second, power to tax brings with it the power to regulate. The government can perform its function of guiding the economy along the planned course without excessive reliance on direct controls only if it is adequately armed with effective tax powers which can touch any part of the economy accord¬ing to the need of circumstances. Third, built-in stabilizers and counter¬cyclical tax adjustments can successfully offset fluctuations in income and employment "where the ratio of taxes to national income is high, a large proportion of revenue is from net income taxes and there is a large foreign