Pakistan’s Tax Gap: Estimates By Tax Calculation and Methodology

Robina Ather Ahmed and Mark Rider

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: This report provides estimates of Pakistan’s tax gap by type of tax and describes the methodologies and data used to produce these estimates. A country’s tax gap is the amount of tax that goes uncollected due to non-compliance with the tax law. For estimation purposes, the operational definition of the tax gap is the difference between potential and actual federal tax revenue, where potential revenue is the amount of tax that the government would collect if everyone fully complied with the tax law. It is a simple matter to get actual tax collections by type of tax, so the trick to estimating a country’s tax gap is to obtain a reasonably accurate measure of potential tax revenue. Our basic strategy is to use micro-simulation models to estimate the potential revenues from Pakistan’s federal taxes of which there are only a hand full. Such modeling requires micro-economic data with information about the relevant tax bases and a tax calculator to simulate tax liabilities by type of tax. The advantage of this approach is the detailed information that it provides on the rate of compliance by type of tax which should be helpful in targeting scarce tax enforcement resources and in evaluating tax policy reforms.

Keywords: Pakistan; Pakistan Taxation; tax gap; non-compliance (search for similar items in EconPapers)
Pages: 78 pages
Date: 2008-12-01
New Economics Papers: this item is included in nep-acc, nep-cwa, nep-dev and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper0811

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