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FiscalPolicyofPakistan

Presentedby:r

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IntroductionThetermfiscalpolicyreferstotheexpenditureagovernmentundertakestoprovidegoodsandservicesandtothewayinwhichthegovernmentfinancestheseexpenditures.

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DefinitionWhatisaFiscalPolicy?AccordingtoSamuelson,FiscalPolicyisconcernedwithallthosearrangementswhichareadoptedbytheGovernmenttocollecttherevenueandmaketheexpendituressothateconomicstabilitycouldbeattained/maintainedwithoutinflationanddeflation

AccordingtoLee,fiscalpolicyconsiders:ImpositionoftaxesGovernmentexpendituresPublicDebtManagementofPublicDebt

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ObjectivesoffiscalpolicyinPakistanselfrelianceexpansionofexportscontainmentofimportofluxuryandnon-essentialgoodspromotionofinvestmentreductioninincomedisparity.

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FiscalPerformanceduring2007-08Thetotalrevenuecollectedduringtheyear2007-08stoodatRs1,499billionagainstthebudgetestimateofRs.1,476billion,thussurpassingthetargetbyRs.23billion,mainlyonaccountofhigherthantargetednontaxrevenues

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FiscalProjectionsfor2008-09Thefiscaldeficitisprojectedtodeclineto4.2%ofGDPin2008-09from7.4%in2007-08.TheFBRistargetedtocollectRs.1360billionin2008-09.

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Projections(cont)Non-interestcurrentexpenditureisprojectedtodeclineby1.5percentagepointsofGDPTheeliminationofoilsubsidiesbyDecember2008andelectricitysubsidiesbyJune2009.

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HowDoesFiscalPolicyworksFiscalPolicyisbasedonKeynesiantheorywhichstatesthatgovernmentcaninfluencemacroeconomicproductivitylevelsbyincreasingordecreasingtaxlevelsandpublicspending..

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TypesofFiscalPolicy1.Expansionary:Anincreaseingovernmentpurchasesofgoodsandservices,adecreaseinnettaxes,orsomecombinationoftwoforthepurposeofincreasingaggregatedemandandexpandingrealoutput2.Contractionary:Adecreaseingovernmentpurchasesofgoodsandservices,anincreaseinnettaxes,orsomecombinationofthetwoforthepurposeofdecreasingaggregatedemandandthuscontrollinginflation.

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MethodsofRaisingFundsGovernmentsexpenditurecanbefundedinanumberofdifferentways:1.Taxationofthepopulation2.Borrowingmoneyfromthepopulation,resultinginafiscaldeficit.3.Externalresources:Foreigngrantandloans4.Privatizationproceeds5.Changeinprovincialcashbalance

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TypesofTaxes1.Direct:DirecttaxistheonepaiddirectlytotheGovt.bythepersons(naturalorjuristic)onwhomitisimposedIncomeTaxCorporateTaxTransferTaxes-estateTax&GiftTaxPropertyTaxCapitalValueTax

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DirecttaxcollectionDirect00Rs(inBillion)80600000006-07Year007-08

collection

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TypesofTaxes(Cont)2.Indirect:AnindirectTaxisataxcollectedbyanintermediary(suchasaretailstore)fromthepersonwhobearstheultimateeconomicburdenofthetax(suchasthecustomer).SalesTaxValueAddedTax(VAT)FederalExciseDuty

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IndirecttaxcollectionIndirectTaxcollectionRs(inbillion)

Year

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Whocollectstaxrevenues?GovernmentofPakistanMinistryofFinanceMinistryofForeignAffairsMinistryofAgriculture

RevenueDivisionFederalBoardOfRevenue

InlandRevenueService

CustomsandExciseDepartment

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Structureoftaxes

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CommonissueregardingcollectionofTaxesTaxEvasion:Itisanillegalpracticewhereaperson,organizationorcorporationintentionallyavoidspayinghis/her/itstruetaxliability.

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CausesforTaxEvasionPeopledonotwanttodisclosetheirtrueincomeToomanyunlawfulbusinessactivitiessuchasdrugs,hoarding,blackmoney,etc.NofearofpunishmentComplextaxstructureSomeeconomicsectorsareexempted:Agriculture,realestateandcapitalgain

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Taxpayersseetheirtaxesbeingusedtofurtherrichcitizensinterests.Uncontrolledinflationandhighcostofliving.LowlevelofliteracyamongtaxpayersTaxpilferagehasbecometherule,andcomplianceanexception

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WhyPakistanfaceslargerevenueexpendituregap?TheprincipalreasonliesinthestructuralweaknessesofPakistanstaxsystemwhichis:ComplexInefficientUnfair

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PrinciplesofTaxPolicyWideningthetaxbaseLoweringtaxratesTaxingallvalueadditionsincludingservices,notjustmanufacturingsectorEstablishaneffectiveandefficienttaxsystem.Overcomethecultureoftaxavoidanceandevasion

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Overview

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Overview

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OverviewI%%%%%%9i

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WhyPakistanisFacingbudgetshortfallIncreaseinnondevelopmentexpenditure.

Subsidiesinbillion4353252151522-

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WhyPakistanisFacingbudgetshortfall(Cont.)N600400Rb200012006-072007-08250278Dft2370503t

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WhyPakistanisFacingbudgetshortfall(Cont.)ToomanyfactoriesareclosedorinpartialproductionforwantofpowerandgasTaxEvasionbywellperformingindustries(cement)StockExchangeandRealEstatepayminimaltax.CorruptionbyTaxOfficialsLawandOrdercausingburdenontheExpendituresidebywayofcompensationtotheaffectedandmobilizationtosendforcestosuchareas.

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HowPakistancanavoidSurgeinFiscalDeficit?CBRshouldimposenewtaxesIncreasethepriceofutilitiesDecreaseindevelopmentspending

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ConclusionPakistanfiscalpositionworsenedbecauseofunexpectedeventsoccurredondomesticandexternalscene.Highproportionofrevenuesbeingspentondefenseandinterestpayments.Lowerindustrialproductivityleadstolowertaxcollectionbecauseofhighinterestrates.Pakistanneedstoincreasetaxbasebyimposingtaxonagricultureandcapitalgaintoincreaserevenue.

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THANKYOU

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