THE ROLE OF TAXATION

IN 'S REVIVAL

Edited by Jorge Martinez-Vazquez

and Musharraf Rasool Cyan

OXFORD UNIVERSITY PRESS Contents

' Abbreviations and Acronyms ix

List ofFigures xi List ofTables xv List ofBoxes xix

Acknowledgements xxi

1. Pakistan's Enduring Agenda for Reforms 1 MusharrafR. Cyan and Jorge Martinez-Vazquez

1. Introduction 1 1.1 The Main Issue 1 1.2 Brief Overview of Government Revenues 4

2. Structural Performance ofTaxes 9 2.1 Revenue Adequacy and International 9 Comparisons 2.2 Buoyancy and Stability of Revenues 22 2.3 Equity and Fairness 26 2.4 Efficiency Considerations 28 2.5 Several Critical Tax Administration Issues 30

3. Current Tax Structure and Main Issues 33 3.1 Basic Structure of the Tax System in an 33 International Perspective 3.2 Main Issues with the Current Tax Structure 42

4. Plan of the Book 50 vi CONTENTS

2. A Review of Major 78 Wayne Thirsk

1. A Brief Snapshot of Economy 78 2. Income Taxes Levied on Individuais and 80 Associations of Persons 3. Issues Concerning the Taxation of 86 Individuais and AOPs 4. The on Companies 95 5. Policy Issues Concerning the Taxation 101 of Companies 6. 105 7. Policy Issues Relating to the Sales Tax 111 8. Federal Duties 112 9. Policy Issues under the Excise Tax 114 10. Wealth Taxes in Pakistan 115 11. Revenue from Imports 116 12. Options and Directions for 117 in Pakistan

3. Tax Policy Effects on Business Incentives 142 James Alm and Mir Ahmad, Khan

1. Introduction 142 2. Some General Principles and Worldwide Trends 143 for Taxing Companies in a Globalizing World 3. Some Distorting Effects of Pakistans 153 Corporate Taxes 4. Evaluating the Pakistan System of 176 Corporate Taxation 5. Reforming the Pakistan Enterprise Tax System 198 CONTENTS

4. Tax Provisions and the Global Economy 209 Geerten M. M. Michielse

1. General Introduction 209 2. Double Tax Agreements 209 3. Effects of Economic Globalization 210 4. Residency 212 5. Treaty Definition 215 6. Sourcing of Income 216 7. 218 8. Specific Business Activities 222 9. International Profit Allocation () 231 10. Other Issues 237 11. Agreements 242

5. The Equity Debate in Tax Policy 255 Umar Wahid and Sally Wallace

1. Introduction 255 2. The Concept of 256 3. Modelling the Incidence of Taxes in Pakistan 261 4. Incidence Assumptions 275 5. Tax Incidence in Pakistan 287 6. Conclusions 319

6. Tax Gap: Where to Collect More Taxes 337 Robina Äther Ahmed and Mark Rider

1. Introduction 337 2. Tax Gap Estimation Approaches 345 3. Pakistans Tax Gap 358 4. Conclusions 376 viii CONTENTS

7. Underutilized Land and Property laxes 387 Roy Bahl, Musharraf R. Cyan, and Sally Wallace

1. Revenue Assignment and Structure 388 2. Urban Immovable : Punjab 392 3. Urban Immovable Property Tax: NWFP 419 4. Comprehensive Structural Reform: UIPT 431 5. Land Revenues: Land and Property Transfer Taxes 435 6. Agricultural Income Tax (AIT) 456 7. Conclusions and Implementation 475

8. The Potential of Provincial Taxation 488 Roy Bahl, Musharraf R. Cyan, and Sally Wallace

1. Motor Vehicle Taxes 488 2. Tax on Professions, , and Gallings 503 (Profession Tax) 3. Sales Tax on Services 514 4. Other Minor Taxes 530 5. Hydel Profits: NWFP 535 6. Conclusions 537

9. Pakistans Short and Medium Term Reform Options 549 Jorge Martinez-Vazquez and Kaspar Richter

1. National Tax Policy Reform 553 2. General Sales Tax 585 3. Corporate Income Tax 613 4. Withholding Tax 630 5. Individual Income Tax 654 6. Federal Excise Duties 679 7. Customs Duties 684

Index 695