MPIA-11062 Taxation Reforms: A CGE-Microsimulation Analysis for Pakistan

Abstract

This paper provides an ex ante assessment of taxation reforms being considered in Pakistan in order to widen the tax base and rationalise the rate structure of different taxes. Amongst the main proposals those focusing on VAT and agricultural direct taxes seem more attractive. The former has the highest share in indirect taxes and is also easier to collect, and the later is intended to bring the presently exempted agricultural incomes in to the tax net. In the first step we study the general equilibrium effects of existing taxes by removing them one at a time from the system. In the second step we study the micro-macro impacts of 4 policy experiments: a) non-uniform VAT, b) changing direct-indirect tax mix in favour of VAT and ensuring revenue neutrality, c) doubling of existing VAT rate, and d) introduction of a 7 percent agricultural income tax. In the third step we try to decompose the personal income tax system in order to obtain the contribution of rate, allowances, deductions, exemptions and credits towards progressivity. Results from experiments indicate that a non-uniform VAT deteriorates investment, distorts consumption, and increases wage inequality. Doubling of VAT rates has similar results except that the decline in investment is greater. A flat agriculture income tax proves regressive as consumption levels of farmers, rural workers and urban poor declines.

Members

Project leader: Vaqar Ahmed

Project researchers: Saira Ahmed | Ahsan Abbas

Journal publication

Authors	Co-Authors	Title of paper	Title of Economic Review	Bibliographic references
Vaqar Ahmed, Saira Ahmed, Cathal O'Donoghue		Reforming Indirect Taxation in Pakistan: A Macro-micro Analysis	eJournal of Tax Research	vol. 9, no. 2, pp. 153 - 173

Working Papers

	Title	Modified	Size	Comments	Recommendations
	Taxation Reforms: A CGE -microsimulation analysis for Pakistan	2010-09-08	396.79KB	0	0

Policy Briefs

	Title	Modified	Size	Comments	Recommendations
	Simulating the Impact of Indirect Tax Reforms in Pakistan	2012-07-08	479.94KB	0	0

Final report

	Title	Modified	Size	Comments	Recommendations
		2009-08-19	1254KB	1	1

Proposal

	Title	Modified	Size	Comments	Recommendations
		2007-07-25	288 KB	1	0