Underground Economy and Tax Evasion in Pakistan:A Critical Evaluation

M Ali Kemal
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M Ali Kemal: Pakistan Institute of Development Economics

No 2003:184, PIDE Research Report from Pakistan Institute of Development Economics

Abstract: A large number of economic activities are not reported to formal economy in Pakistan and thus remain out of the tax net; such activities includes smuggling, corruption, black-marketing, narcotics, etc., constitute the black or underground economy. Thus the term “black economy†1 indicates all those activities which are concealed from the tax authorities in an attempt to evade taxes. Tax evasion refers to all the illegal actions taken to avoid the lawful assessment of taxes. The underground economy flourishes when cash transactions such as construction, illegal sale, smuggling, and drug trafficking are common. High tax rate, recession, high unemployment, and negative public attitudes towards government and taxes are some of the factors that lead to the spread of the underground economy, tax evasion, as well as tax avoidance.

Pages: 43
Date: 2003
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