TAX REVENUE DETERMINANTS OF PAKISTAN

Abstract

The world is rapidly transforming into global village and trade liberalization has gained exceptional attention from various developed as well as developing. Pakistan has been facing continuous fiscal deficit problem on an average of 5.2 percent of the GDP. Pakistan has adopted a number of tax reforms and administrative measures to improve tax collections. The policy option of trade liberalization causes the problem of a reduction in the revenue collection from customs duty. Reduction of trade tax revenue due to trade liberalizing is a common problem in both the developing and developed countries. Thee research focused on the fiscal costs of trade liberalization, which Pakistan has had to endure. The study tried to estimate the determinants of the tax yield in Pakistan, to improve the tax capacity of Federal Board of Revenue. The fiscal policy maker facing issue to raise the tax revenue to compensate the loss of trade tax revenue due to trade liberalization. In this case study we tried to highlight the determinants of tax revenue of Pakistan and estimates made for the period of 1995-2015 through VAR model. The Wald coefficient test (F-test) which showed the existence of a strong co-integration between tax revenue and all the other independent variables. The long-run coefficients of these variables showed that effective tariff rates, agriculture to GDP ratios, and capital openness have   shown significant and positive impacts on the tax revenue of Pakistan during the period under consideration. It is suggested that supportive macroeconomic policies and conducive environment facilitate trade policies in Pakistan as tax revenue determinants are identified for successful implementation of trade liberalization policies in the economy of Pakistan.