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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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