EconPapers    
Economics at your fingertips  
 

Taxation Reforms: a CGE-Microsimulation Analysis for Pakistan

Saira Ahmed (), Vagar Ahmed and Ahsan Abbas

Working Papers MPIA from PEP-MPIA

Abstract: This paper provides an ex ante assessment of taxation reforms being considered in Pakistan, in order to widen the tax base and rationalise the rate structure of different taxes. Amongst the main proposals, those focusing on sales tax and agricultural direct taxes seem relatively more attractive. The former has the highest share in indirect taxes and is also easier to collect, while the latter is intended to bring the presently exempted agricultural incomes into the tax net. As a first step, we study the general equilibrium effects of existing taxes by removing them from the system one at a time. In the second step we study the micro-macro impacts of four policy experiments: a) increasing sales tax rate by 33 percent; b) applying a 10 percent sales tax on presently zero-rated goods; c) increasing sales tax rate by 33 percent and bringing the services sectors in the sales tax net; and d) increasing sales tax rate by 33 percent, bringing the services sectors in the sales tax net, and imposing a 5 percent flat tax on agricultural incomes. In the third step we calculate the lost revenue due to evasion and avoidance. Results from experiments indicate the tough choices for policy makers in trying to improve the currently low tax to GDP ratio in Pakistan. Almost all simulations result in a decrease in investment levels, reduced consumption, and an increase in poverty. We thus recommend a gradual approach to tax reform that can make the adjustment process less painful.

Keywords: Taxation; Microsimulation; General Equilibrium; Poverty; Inequality; Progressivity; Redistribution (search for similar items in EconPapers)
JEL-codes: H22 D58 C51 C81 I32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-cmp, nep-pbe and nep-pub
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://portal.pep-net.org/documents/download/id/16568 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:mpiacr:2010-12

Access Statistics for this paper

More papers in Working Papers MPIA from PEP-MPIA Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().

 
Page updated 2019-04-14
Handle: RePEc:lvl:mpiacr:2010-12