The Tax Network And Tax Compliance In Pakistan

Published Date: 02 Nov 2017

Since the last two decades, Pakistan has undergone various economics difficulties. Recurrent political adjustments caused by lack of consistent policies and their implementation, poor governance, externally caused disasters like floods, terrorism activities etc has struck the country’s economy adversely. In order to finance and construct such policies, foreign financial assistance has always been in need. This is because the amount of tax revenue collected annually has never been adequate for development as well as recurrent expenditures. This is largely because of inefficient and ineffective taxation system of Pakistan, which is ridden with administrative corruption, incidence of tax evasion and incompetency in implementing tax policies effectively throughout the country, among other weakness. These will be discussed further on. Therefore, in order to study the affect of foreign inflow in the economy, it is important to analyze whether it improves the tax administration and tax effort of the country, or not, in order to increase its own tax revenue.

A Historical overview of the Taxation Structure, the tax network and tax compliance in Pakistan

The taxation structure and its compliance by the people vary from country to country. It is the responsibility of the Government to tax the public in the manner they see fit, in order to run the country.

For Pakistan, the 1973 Constitution lays down all the rules and regulations needed for all the tiers of the Government to function systematically. Therefore, the reviewing constitution is the first step to take in order to explain the functioning of the country, whether from a social aspect or from a financial one.

Under the finance chapter, Article 160 of National Finance Commission, the Constitution of Pakistan clearly defines the rules required for the distribution of the revenues between the federal Government and the Provincial Government. It defines the taxation system and structure that should be implemented in the country. According to the 1973 Constitution, taxes are imposed by the authority of the Parliament of Pakistan and it is the responsibility of the Federal Board of Revenue to enforce and collect these taxes. This tax is defined there as:

"taxes on income, including corporation tax but not including taxes on income consisting of remuneration paid out of the federal Consolidated Fund." (Constitution of Pakistan, 1973)

These taxes also include taxes on sales and purchases of goods which are domestically produced and consumed, export duties on raw materials, excise duties on imports and other taxes specified by the President.

Structure of Taxation through the Ages

The taxation structure of Pakistan has undergone changes throughout the years but to no avail. There has been slight improvement in the collection of tax revenue through the years but the ratio of tax to GDP has not been improving as much. In order to better understand the mechanism and the structure of Pakistan’s taxation system it is important to review the responsibilities which comes under the different tiers of the Government.

Review of Federal and Provincial Taxation Structure

The structure of the Government of Pakistan is important to consider in explaining the structure of the taxation department. The government is divided into three tiers and its responsibilities and functions are outlined clearly in the 1973 constitution. These are the Executive, the Legislative and the Judiciary. Under the Legislative powers, the federal government carries its functions under the federal legislative list. According to Akbar Zaidi (2005):

"The federal legislative list includes functions of a regulatory and service nature. Service functions include defence, external affairs, currency, stock exchanges, national highways and strategic roads, railways, etc."(Zaidi, 2005)

After this there is a Concurrent Legislative List. This list of functions are performed by either federal or/and provincial governments. These functions include population planning, electricity (except KESC), tourism, vocational/technical training etc. Lastly, the residual functions are the responsibility of the provincial government including law and order, justice, public transport etc. Despite its acknowledgment in the Legal Framework Ordinance 2002, the existence of the local government as well as the District Government is not officially recognized in the 1973 Constitution. Due to this non recognition of the local government, many of the functions which should be performed by, and the responsibilities of the provincial government, are delegated to the local government most of the time. However, the role of the local government was recognized in the 1979 when the Local Government Ordinance was passed. Unfortunately it was implemented only in Punjab, Sindh and the then NWFP. In 1980, the same ordinance was extended to Balochistan till 2001 ordinance, which replaced them all.

After reviewing the structure of the Governmental hierarchy of Pakistan, it will help to systematically define the structure of the taxation system of the country itself.

Tax structure is the most integral part of the whole taxation system of the country. The Federal Tax Structure is made up of a large share of Income tax, General Sales tax, which was introduced in 1996 in Pakistan taxation structure, and the Custom duties. All these three taxes are collected by the Central or now the Federal Board of Revenue. The provincial tax structure is divided into three major categories; the Excise and taxation, land revenue and the funds provided to and collected by the local government. The Excise and taxation department is responsible for collecting the property tax, motor vehicle, the professional tax as well as the provincial excise. The land revenue includes the land related levies other than property. The Federal Government has given the Provincial Government a freer hand in its financing, as the Federal Government plays a large role in financing its debts.

Theoretically the sales tax on services should be a part of the Excise and Taxation, but unfortunately in Pakistan, the imposition and the calculation of such a tax has not been deciphered yet.

Elasticity of Indirect and Direct Taxation System

It is not as much as the tax rates itself which impacts the economy, but the elasticity and buoyancy of these taxes which helps determine the impact on the revenue. The elasticity of tax determines the responsiveness in tax revenue which is caused by a percentage change income or GDP. On the other hand, buoyancy measures the total response of revenue from changes in income or GDP. As tax rates increase over time therefore the buoyancy of tax rates, whether as a whole or individual tax, is greater than elasticity.

The extend of elasticity depends on the nature of the tax; whether it is a direct tax or an indirect tax, whether it is specific or ad valorem in character, its tax to base ratio etc. In the case of federally administered taxes, the direct taxes include income tax, corporation tax, wealth tax and property tax where as the indirect taxes include the sales tax, excise duty, exports duty, foreign travel tax etc.

Pakistan has never been able to raise its ratio of tax revenue to GDP more than 13 percent. According to Faiz Bilquees (2004), there are three major weaknesses in the tax system of the country which has caused such a failure, "narrow and distorted tax base, over-reliance on indirect taxes, and weak tax administration."

By observing the figures of direct and indirect taxes over the FY of 1974 to 2003 in Appendix 1, it depicts the inadequacy of generating revenue and that ratio of tax to GDP has been not more than 13%. According to Faiz Bilquees (2004) the reason of very low share of direct tax to GDP was the high tax holidays and tax exemptions in the 1960s, but it raised in early 1990s. whereas the share of direct tax to GDP remained around 11 to 12% from 1970s to mid 1990s. "However, over time, the shift in the shares of direct and indirect taxes as a percent of total taxes has been quite significant" from 1974-75 to 2001-02.

Source: Pakistan Economic Survey (various issues)

According to the recent data of 2010 to 2011 from the Economic Survey of Pakistan, the federal indirect tax to GDP was around 5.3 percent while indirect tax to GDP was around 3.3 percent.

All income tax in Pakistan is not hundred percent direct taxes. The reason behind this is the withholding tax. Withholding tax is technically taxation at source. This means that when a tax payer’s salary is paid, his withholding tax is cut when the tax payer is paid his salary. On the other hand, withholding tax is cut on wholesale or bulk supply by the purchaser before paying the due amount and this withholding tax should be filed to the income tax department by him. Same is the case of tax on services, custom duties etc.

Effectiveness of the Taxation Structure on Tax Compliance in Pakistan

The success of a taxation system of a country depends on the extent of compliance to the tax rates by the tax payers of Pakistan. It was recorded that in 2011-12 about 1.4 million filed their income tax returns, out of the 17 million people in the country. In addition to this, about 40,000 business units filed sales tax returns. Even these figures are a popular misconception among the country especially the statement that one percent Pakistanis pay taxes. The reason behind this is that millions of consumers pay indirect taxes in the form of sales tax, federal excise duties etc. These are counted as the income tax paid by the taxpayers.

There are few ways in collecting income tax in advance. Before the 30th June of every year, the tax payer has to show evidence to the income tax department that he has settled his taxes for the respective year; this is called filing a return of that fiscal year. For other cases, income taxes are cut in advance in the form of withholding tax. This causes income tax to be regressive because withholding tax has to be paid by everyone regardless their income. But for the taxpayers who earn salaries, it is not regressive because they pay according to the normal tax rate. For the salaries, this tax is considered as the final tax liability. This is proved to be injurious to the tax payers because the tax is cut on the principle payment and not on the profit after deducting the expenses. This shows that those who earn more, pays more tax but it is on the contrary. A lot of taxes go in the collection of withholding tax. Thus a large amount of income tax is collected under the withholding tax. From 1989 to 1995 around 40% of the revenue was contributed by the withholding tax. This has caused a reduction in the cost of compliance for tax payers and simplified the tax administration.

Furthermore, a subset of withholding tax is the presumptive tax which assumes that the tax deducted is considered to be the final tax liability and it is applicable on salaries, payments, supplies and imports. Appendix 2 shows the collection of withholding taxes and its growth in fiscal year 2004-05.

Source: CBR Yearbook, 2005-06

The increasing reliance on withholding tax in clearly shown in the table as it has contributed about 57.5% in FY 2005-06. The gross collection was increased to 76.9% and there was a major growth of 25.2% in the tax revenue.

Inefficiency/Efficiency of Tax Network and the Macro economy

The tax network of Pakistan is different for every federal tax components. For the income tax, the tax payers are required to file their tax return at the end of every fiscal year which is June 30th (trend over years). Furthermore, those who file their tax returns to the income tax department, FBR give a number to the filer called the NTN. This stands for the National Tax Number. In recent years there is a decreasing trend of NTN holders who file their tax returns annually. This is because people want to avoid tax deduction from their income or do not want to declare the amount of income they receive. According to the latest data from the Ministry of Finance, it has been recorded that in 2011, the number of NTN holders are 3,168,310 while the number of individuals who have filed their taxes in that year are only 1,501,630. This shows that only 47.4% of NTN holders filed their tax returns at the end of FY2010. (See Appendix 7)

In order to detect income tax, tax authorities review properties and assets of an NTN holder and calculate his income. If the declared assets value is less than the actual value then there are charges on the unexplained or undeclared income of the individual. According to Amnesties, tax authorities can charge an individual for the undeclared income for not more than previous five years. If the individual pays the charges then he is not prosecuted at all. Unfortunately in Pakistan, there has never been any prosecution by the income tax department against individuals with undeclared income and assets, only penalties. Thus due to amnesty schemes, the tax network should increase as well as the tax revenue of the country. But unfortunately, neither did the tax network nor the tax revenue increased as much due to these schemes.

Another part of the tax network of Pakistan is the "money whiteners." In 1990, when Nawaz Shareef became Prime Minister, he introduced a law under the name of Economic Reform Order. This declared that if an individual opens a foreign currency account in Pakistan then the Tax authorities or the national accountability bureau cannot question its source. Along with this, they introduced a concept of foreign exchange Bearer certificates against dollars and no one can question its source as well. The purpose of these measures was that those who had undeclared income, and did not give the income tax, could convert that income into FEBCs or put them in foreign currency accounts thereafter making the money "white" or legal. A lot of these "money whiteners" were abolished at the time of Musharaf’s regime except for the remittances. The sources of these remittances were not questioned in his regime. This was also a way of money whitening in a way that individuals used to transfer money abroad from outside the banking channel and then that money was transferred back through the banking channel recognized as remittances.

Tax Reforms affecting Tax Collection and Compliance

According to the Economic Survey of Pakistan 2011-12, the government has placed the reform of tax administration the first agenda in order to improve the declining tax to GDP ratio along with the issues of debt servicing and defense needs. This reform strategy had three main categories; policy reforms, administration reforms and organizational reforms.

In order for these reforms to take action, according to the same survey, FBR has prepared a new recruitment policy which emphasizes on skills of the employees. This will improve the efficiency of the institution and may help increase tax effort. The main units of the Federal Bureau of Revenue namely Large taxpayers units (LTUs) and Regional Tax Offices (RTOs) will be responsible to reorganize the structure of income tax and sales tax as well as test it in order to avoid discrepancies.

Furthermore, in order to encourage individual taxpayers to comply to the income tax procedures, taxpayers’ education and facilitation centers has become the utmost priority of the government in order to improve voluntary compliance.

Moreover, Customs Administration reforms (CARE) were introduced in order to reduce the time of clearance of goods and reduce cost of doing business.

In addition to this, according to the Economic Survey of Pakistan 2011-12, the government has mentioned the purpose of introducing the following reforms by stating, "Reforms were made by the Government in the form of presidential ordinance and withdrawal of SRO based exemptions; amendments were made in the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005."

Analysis of Determinants of Tax Policy and Administration in Pakistan

The tax administration is known for its ill organization, inefficient functioning, out dated procedures, lack of skills and over reliance on manual work rather than computerized records and procedures. There is also a common perception of corruption and arbitrariness in the tax system.

There are several determinants of tax administration of Pakistan. According to a former member of CBR, Ahmed Khan, in a macroeconomic setting, resource mobilization of the country improved till 1991-92 but after that it declined. And total revenue to GDP ratio went down from 19.1 to 16.1 percent in 1997-98 and was expected to decline further after that. Furthermore, the gap between federal and provincial fiscal effort kept increasing. This was due to limited fiscal space and narrow tax base. In order to amend this gap it is suggested that radical structural adjustment in the federal and provincial taxation system is required.

Trends of Tax to GDP ratio of Pakistan in recent years

The historic trend of the ratio of tax to GDP of Pakistan has been more or less stagnant and has not shown much improvement through the years. It has been less than 13 percent to date as compared to the ratio of other developing countries in the world, which averages around 18.5 percent.

According to the former member of CBR, Ahmed Khan, when talking about the trends of taxes in the 1990s, historically the ratio of direct taxes to GDP has "remained between 2.68 per cent to 3.8 per cent of GDP as against an average of 7.2 per cent for other developing countries." Whereas, the share of indirect taxes was "around 9 per cent in Pakistan as against 5.2 per cent in other developing countries."

While highlighting the recent trends of Pakistan’s tax to GDP ratio, it can be observed that it is expected to increase from about 8 percent in 2010-11 to about 9.5 percent of GDP in 2011-12. (See Appendix 3)

Source: Fiscal development. Economic Survey of Pakistan. 2011-12

The indirect tax to GDP ratio was recorded to be around 5.3percent while direct tax to GDP ratio to remain around 3.3 percent in 2010-11, while it was recorded to expect to decrease to 4.3 percent and direct tax to GDP ratio to 2.6 percent. The ratio can only increase if the untaxed sectors and contributors of the economy are included in the tax base.

Relationship between Tax Evasion and Tax effort.

Tax evasion is defined as the deliberate avoidance of an individual in paying taxes or filing tax returns to the Tax authorities. While tax effort is a conglomerate of tax administration, tax policies and laws, tax compliance and the tax base which enables an institution to have the capacity to collect tax revenue as a percentage of the income generated from that country, therefore, the relationship between the tax evasion and the tax effort would be of negative in nature. This is because due to the increase in the trend of tax evasion by the potential taxpayers, the amount of tax collected will reduce, resulting in a decrease in the tax to GDP ratio. The following graph represents data of tax evasion to GDP of Pakistan as against the ratio of Tax revenue to GDP of Pakistan from the years 1990 to 2010. Appendix 4 clearly shows the decreasing trend thus a negative relationship between tax evasion and tax revenue as a percentage of GDP.

Despite the increase in the trend of withholding tax, which has caused the reduction and detection of tax evasion easier, the trend of tax evasion to GDP still grows.

Reforms and Policies in order to boost Tax Effort

There are various reforms and policies introduced by the Pakistan Government in order to increase tax collection and tax effort. Some were successful; others did not show much impact on tax revenue or the tax to GDP ratio of the country. Following are few of the major reforms or laws introduced by the Government of Pakistan and were implemented since the country’s inception.

Income Tax Ordinances

There has been three major income tax ordinances passed by the government of Pakistan. Nowadays the income tax ordinance which is being observed is the 2001 income tax ordinance.

The first income tax law adopted by the Government of Pakistan was the Income tax Act in 1922. This was replaced by the income tax ordinance in 1979 and finally in 2001 a refined income tax ordinance was introduced which is applicable to date.

National Finance Commission Award

National Finance Commission Award is a way of domestic resource distribution in Pakistan and to improve domestic resource mobilization. The revenue collected by the Federal Government is redistributed to the provincial government which further distributes funds to the local government.

There has been several NFC Awards throughout the history of Pakistan. The years in which they were made were 1974, 1979, 1985, 1990, 1996, 2000, 2006 and the latest in 2009. Officially these awards should be made after every five years but there has always been a huge gap of years between them like the seventeen years from 1974 to 1991.

According to Akbar Zaidi (2005), there was a boost of revenue sharing for the Provincial Government in 1991 which was the result of the Federal Government taking the responsibility of financing the Provincial Government, by providing them subventions and grants. As a result, revenue doubled from Rs.7.1 billion to Rs.15.9 billion in 1991/2. The Provincial revenue also increased around 40%. (See Appendix 6)

Source: Ahmad, Nuzhar and Syed Ashraf Wasti, ‘Pakistan’, in Smoke, Paul, and Yun-Hwan Kim (eds) Intergovernmental Fiscal Transfers in Asia: Current Practice and Challenges for the Future, Asian Development Bank, Manila, December 2002.

Despite the elaborate resource transfer procedures, Provincial Government budget have frequently been in deficit.

The effect of Tax noncompliance on tax effort of Pakistan

There are economic, political as well as social issues pertaining to non compliance to tax payment which effects tax effort.

There is a very low trend of saving in Pakistan. This causes individuals to avoid paying income taxes which would reduce their income. Resultantly, they do not tend to declare their assets and income in order to avoid tax cut from the authorities.

In this country, people have a deep unpopular notion against the Government and its associated authorities. They do not trust governmental departments and their functions. Therefore, there is a high tax non compliance because they know that the tax proceeds will go in the hands of the corrupt politicians and their officials. They will not be put in a productive use for the betterment of the country’s population.

The extent of dependency of Pakistan on Foreign Aid

Foreign Aid has been the major source of finance, may it be for development or non development purposes, for Pakistan since the beginning. Since then Pakistan has majorly been dependent on such foreign Aid due to various domestic and foreign issues which has kept its domestic funds and reserves to a minimum as compares to the country’s expenditures.

Determinants that effect Foreign Aid inflows in Pakistan

The list of reasons for Pakistan to ask for and receive foreign aid has been innumerable. The most important determinant of Pakistan for being a foreign aid receipt is its geostrategic location. This can be observed during 1979 to 1988 when the Soviet Union invaded Afghanistan, the United States being a major player in this war, wanted the Soviet Union to be defeated thus it increased its aid to Pakistan. This was so that Pakistan could not make alliance with the Soviet Union and help Afghanistan to win the war. Furthermore, after the 9/11, Pakistan again was given Aid from the US, in order to help them "battle terrorism from the region."

One of the various reasons is the corrupt government of Pakistan. It has been observed that government officials tend to use funds from the national treasury for their own personal purposes. This causes the treasury to have fewer funds for the execution of national projects and other federal expenditures. Therefore in order to fill the gap of savings and expenditure, there is high need for foreign assistance.

The effect of Major Donors on Pakistan Economy

There are various donors of Aid to Pakistan from all around the world including various developed countries from Europe, Australia, few from Far East Asia like Japan etc. The major donor of aid to Pakistan throughout has been the United States of America, followed by the United Kingdom. Other than countries, there are various foreign agencies, nongovernmental and governmental alike which actively contribute to the economy of Pakistan.

The aid inflow in Pakistan comes mostly in the form of loans and grants. Appendix 5 shows the average annual record of grant and loan assistance to Pakistan from various countries and foreign aid agencies from the years 2004 till 2009. It can be observed the major share is taken by the assistance given by United States among the countries and the Asian Development Bank followed by the World Bank among the agencies.

Source: State Bank of Pakistan Annual Report

Foreign Aid Inflow, Political Dimensions of Taxation and the Tax Effort

Foreign Aid: A Curse for Pakistan?

The previous literature has always highlighted the positive aspect of foreign aid to a country for economic development. It has been recorded that Pakistan has received US$73.14 billion amount of foreign aid from 1960 to 2002 [Anwar and Michaelowa (2006)]. Despite the huge amount it has not caused a substantial change in the country’s economy and the society as a whole. It has always been utilized for the benefit of the influential elite of the country and has hardly been used for the development purposes. Various studies have shown that aid does not have any relationship with different aspects of the economy like savings, investment and others. Boone (1996), Easterly (2001), [Levy (1984)]. Therefore, it was concluded that "Inelastic revenue structure, large size of non-development expenditures, reduction in public investment, infrastructure deficiencies, and lack of social services are the main gifts of aid." (Khan, M.A., Ahmed, A, 2007) for Pakistan.

Foreign Aid, Aid Conditionalities and the Tax Effort

The foreign Aid to Pakistan has more or less always been subject to conditionalites by the donors. Historically when the country had its first nuclear test in 1998, U.S put sanctions on the country and stopped the aid inflow in Pakistan. Since 1988 to 2002, Pakistan’s aid was stopped by the U.S due to the Nuclear Programme started by the country. There several other incidences when the donors have stopped to started the inflow of aid to Pakistan where their vested interests were fulfilled.

These conditionalties are in the form of more interest payment, low inflation, or that the funds should be used for military purposes etc. Nevertheless, whenever conditions are imposed by the donor countries it affects the Pakistan’s economy adversely. It has been known that the country increases the rates of indirect and direct taxes and puts the economic burden on the working population. This does not affect significantly because of the poor system of tax collection, tax evasion and corruption. Resultantly, the government has to borrow in order to pay back the debt and fulfill conditionalities. This causes the economy to enter into a debt spiral making the situation worse.

Aid Effectiveness on Tax Effort in Pakistan

There have been conflicting theories about the effectiveness of aid on tax revenue and tax collection. (Khilji and Zampelli,1991, Khan and Hoshino,1992). According to Salman Ahmed, foreign aid does effect taxation of Pakistan butgrants and loans both have different effect on taxation. In his studies he incorporated government expenditure and investment to measure this relationship. He concluded that foreign aid is regarded as an increase in income by the government and it is used for public investments. He also said that loans are used to generate investment in the country while grants usually decrease the tax burden due to its non repayment characteristic. In the case of loans it is vice versa.

Managerial concerns pertaining to research

As Pakistan is a major recipient of foreign aid around the world, especially of the United States of America, this thesis may help facilitate the policy makers in analyzing the high dependency of foreign aid and how to tackle this situation. Furthermore, it can allow review the structure of the tax system of the economy and to formulate steps and make reforms so that the taxation system and tax collection becomes more effective and efficient in generating more revenue. In addition to this, policies can be made to enhance the tax collection procedures by the provincial and local government and further decentralize powers for affective results.

Keywords and definition

Tax Effort, Tax Revenue, Gross Domestic Product, Official Development Assistance, Grants and Loans

Tax effort: "Tax effort is defined as an index of the ratio between the share of the actual tax collection in gross domestic product and the predicted taxable capacity. Actual tax revenue as a share of GDP is one of the most commonly used measure of tax effort." (Minh Le,T., Moreno-Dodson, B., Bayraktar, N. 2012)

Tax revenue: "Tax revenue refers to compulsory transfers to the central government for public purposes. Certain compulsory transfers such as fines, penalties, and most social security contributions are excluded. Refunds and corrections of erroneously collected tax revenue are treated as negative revenue." (World Bank, WDI)

Gross Domestic Product: "GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources." (World Bank, WDI)

Official Development Assistance: "Net official development assistance (ODA) consists of disbursements of loans made on concessional terms (net of repayments of principal) and grants by official agencies of the members of the Development Assistance Committee (DAC), by multilateral institutions, and by non-DAC countries to promote economic development and welfare in countries and territories in the DAC list of ODA recipients. It includes loans with a grant element of at least 25 percent (calculated at a rate of discount of 10 percent). Net official aid refers to aid flows (net of repayments) from official donors to countries and territories in part II of the DAC list of recipients: more advanced countries of Central and Eastern Europe, the countries of the former Soviet Union, and certain advanced developing countries and territories. Official aid is provided under terms and conditions similar to those for ODA. Part II of the DAC List was abolished in 2005. The collection of data on official aid and other resource flows to Part II countries ended with 2004 data." (World Bank, WDI)

Study objectives

The aim of the thesis is to gauge whether foreign aid inflows affects the fiscal behavior in terms of the tax structure, tax collection, tax compliance and tax effort in Pakistan , or not for the time period 1990 to 2010 in Pakistan’s history.

To test the proposition whether the incidence of corruption impacts the tax collection and revenue generated in Pakistan, or not, in a time series setting from 1990 to 2010. Here, a proxy variable to represent corruption has been taken as ‘Tax evasion to GDP ratio’. The foreign Aid components focused in this thesis are grants, loans and the net aid indicated as the Net Official Development Assistance. In order to measure tax effort, few proxies are used including Tax to GDP effort, growth in tax revenue, difference in potential tax to GDP and actual tax to GDP and the ratio of predicted Tax to GDP and actual tax to GDP. Other variables incorporated in this thesis, in order to test this hypothesis are taken from various databases, mostly World Development indicator, Political Risk Services and International Country Risk Guide and various publications listed.

Appendices

Appendix 1:

Appendix 2:

Withholding taxes

Collection in 2004-05

Collection in 2005-06

Growth (%)

Share in Sub-total

Share in gross total

Subtotal

111,498

139,257

24.9

100

57.1

Gross Collection

202,801

243,736

20.2

-

100

Appendix 3:

Appendix 4:

Source: Self made. It shows the Relationship of Tax evasion as a percentage of GDP with Tax revenue as a percentage of GDP during the years 1990-2010. Data of Tax to GDP from WDI and data of Tax evasion to GDP from Kemal (2007).

Appendix 5:

D:\BSc IV\Re Meth\data\loans_and_grants_pie-600.jpg

Appendix 6:

Assigned Shares to Provinces Under NFC Awards (Percentages)

Province

Raisman (1951)

NFC (1970)

NFC (1974)

NFC (1990)

NFC (1997)

Punjab

59

(64)

57

(62)

60

(60)

58

(58)

58

(58)

Sindh

24

(20)

23

(22)

23

(23)

23

(23)

23

(23)

NWFP

15

(14)

16

(14)

13

(13)

14

(14)

14

(14)

Balochistan

2

4

4

5

5

Total 100

100

100

100

100

100