Taxation Reforms In Pakistan

Macro economic imbalances in Pakistan, caused by the burgeoning budget deficit and a large trade deficit, have created strong pressures for stabilization and structural adjustment involving wide ranging reforms in different sectors of the economy. Given downward rigidities in public expenditure, resulting from the growth in defence and debt servicing liabilities, it has become essential to reduce the budget deficit primarily by action on the revenue side. Following the largest ever budget deficit in 1990-91, the newly inducted government constituted a Tax Reforms Committee (TRC) to study the problems in the taxation system and to make recommendations for improvement. The Committee submitted its report in early 1991. Most of its proposals were accepted by the government. The Resource Mobilization and Tax Reforms Commission (RMTRC) was constituted to implement the recommendations of the TRC and to contribute directly to the budget making process. Over two years have elapsed since setting up of the RMTRC and three budgets of 1991, 1992 and 1993 respectively have been announced incorporating significant changes in the taxation system. However, taxation reforms remain one of the least publicized areas of reforms as compared, for example, to steps taken towards liberalization, privatization and deregulation of the economy. This paper attempts to identify the major tax reforms that have occurred in recent years and evaluate them from the viewpoint of impact on revenue and the efficiency and equity aspects of taxation .