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12 - The Prospects for Indo-Pakistan Trade
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- By Hafiz A. Pasha, Lahore School of Economics, Muhammad Imran, Beaconhouse National University
- Edited by Rashid Amjad, Shahid Javed Burki, National University of Singapore
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- Book:
- Pakistan
- Published online:
- 05 May 2015
- Print publication:
- 13 April 2015, pp 311-331
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- Chapter
- Export citation
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Summary
Introduction
Trade between India and Pakistan has been fundamentally influenced by factors that are not purely economic. At the time of Partition in 1947, both economies were heavily interdependent, with the share of the Indian market in Pakistan's exports at close to one-fourth, and over half of Pakistan's imports coming from India. Thereafter, bilateral trade has had a chequered history. Trade virtually ceased after the wars of 1965 and 1971.
Some positive steps have been taken since 1995, when India announced its decision to grant most favored nation (MFN) status to Pakistan, and the latter established a positive list with respect to imports from India. The signing of the South Asian Free Trade Agreement (SAFTA) in 2004 was a major step forward in the eventual establishment of a customs union in the region. Recently, Pakistan announced its potentially landmark decision to grant MFN status to India by the end of 2012. In the interim period, a restricted positive list has transitioned to a negative list, which opens up a large percentage of tariff lines for imports from India. Further, the two countries have agreed to simplify customs procedures and facilitate the process of goods certification. India has also announced that it welcomes investment by resident Pakistanis and companies.
Clearly, the environment for bilateral trade has greatly improved. This augurs well for future growth in trade between the two countries, which are making an effort to move away from the old view of “peace first, trade later” to “trade now, peace later.” It is hoped that the expansion of trade will create stronger constituencies for peace in both countries.
The objective of this chapter is to explore the possibilities of Indo–Pakistan trade in the new environment. Section 1 describes the current level and pattern of bilateral trade. Section 2 identifies some basic issues in the context of trade development between the two countries.
7 - The Future Path of Tax Reforms in Pakistan
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- By Hafiz A. Pasha, Lahore School of Economics, Aisha Ghaus-Pasha, National University
- Edited by Rashid Amjad, Shahid Javed Burki, National University of Singapore
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- Book:
- Pakistan
- Published online:
- 05 May 2015
- Print publication:
- 13 April 2015, pp 171-197
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- Chapter
- Export citation
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Summary
Introduction
Pakistan's taxation system has come under intense scrutiny in recent years. The country's low and declining revenue yield has been attributed to wide-ranging concessions and exemptions, large-scale tax evasion, and a slack and corrupt tax administration. This has led to the perception of a virtual breakdown of tax compliance in the country.
Improving the tax effort has now become the lynchpin of any future economic reform process. Experience shows that this will require political determination to overcome the resistance from powerful vested interests. In addition, tax collecting agencies such as the Federal Board of Revenue (FBR), will need to undergo fundamental improvements to successfully implement the required changes in tax policy.
The objective of this chapter is to describe Pakistan's taxation system both at the federal and provincial levels, followed by an in-depth diagnosis of the factors contributing to the exceptionally low tax-to-GDP ratio. We also assess the level of tax rates, the magnitude of tax expenditures (revenue losses due to concessions and exemptions in the tax code), and the extent of tax evasion.
Based on this diagnosis, we identify the key elements of a reform package in the areas of tax policy and administration. This set of reforms will promote transparency of the tax system, improve the progressivity of the tax burden, and remove distortions in the allocation of resources in the economy. Importantly, the various measures proposed will help in significantly raising the tax-to GDP ratio.
The taxation system
Allocation of fiscal powers
The major taxes that can be levied at the federal level are given in Part I of the Federal Legislative List (FLL) in the Constitution of Pakistan. As shown in Table 7.1, this includes customs duties (including export duties), excise duties, taxes on income and corporations, sales tax, capital value tax, taxes on natural resources, capacity taxes, and terminal taxes on goods and passengers carried by different modes of transport.