Resource Mobilization and Tax Elasticities in Pakistan

The paper is focused to identify shortcomings in the tax revenue collection in Pakistan. For this purpose, elasticities of different taxes were estimated. Partial adjustment and regression models were estimated to quantify the values for these elasticities. Short-run and long-run elasticities for direct and indirect taxes were identified. The results indicated that long-run revenue elasticities were slightly above unity, which is not very satisfactory for a developing country. It should be well above unitary value. Moreover, tax to base elasticities of custom and excise duty was significantly less than unity. Besides, sales tax is also not in full operation. Most of the revenue reliance is on indirect taxes, which is not a very healthy sign for the economic growth and it’s burden on the society. It means that main tax burden is on the poor. It is on the face that more than 30% people are living below the poverty line. These findings have important bearings for the policy makers. There is a need to broaden the tax base, improve upon direct taxes, reduce indirect taxes and rationalize sales tax rates.