Business Economics Report Iu

8/13/2019 Business Economics Report Iu

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Business English Report


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Letter of TransmittalJuly 8, 2013

Course Instructor Business Economics

Dear Madam:

Dr. Alam Raza

IQRA University,

Karachi.

Dear Madam:

I feel immense pleasure in presenting the project report on "Theeffects of tax on demand & supply". This report is the outcome ofthe conducted research which outline the results of "increasedtaxes".In this report Tax is defined with its different aspects. Thediscussion then focuses on the Impact of Tax on our demand andsupply. The crux of my report is based upon the findings from thebudged document (2013-2014).

I have tried my level best to complete this report as in accordancewith the desired requirements. Kindly accept it; I hope this reportwill prove to be satisfactory.

Yours Sincerely

Ushair Fareed (20988)


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Acknowledgement

First of all, I would like to express my gratitude to IQRA

University for giving me an opportunity to pursue Masters in

my field of studies. I am heartily thankful to our teacher, Dr.

Alam Raza, whose encouragement, guidance and support from

the initial to the final level enabled me to understand the

various steps involved in conducting a Project report.

Furthermore, I would like to thank all my friends, my brother

and especially my teacher for their kind cooperation and

efforts to assist me in every helpful way they can. I must admit

that this semester I had the best studying experience and will

always cherish this year for my whole academic life.


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ReportEVALUATION OF TAX AND ITS

EFFECTS ON DEMAND SUPPLYSUBMITTED TO:

Dr. Alam Raza

Individual: Signatures

Ushair Fareed (20988)

BUSINESS ECONOMICS

MONDAY & THURSDAY 12:00 PM TO 3:00 PM

DATE OF SUBMISSION

8-july-2013


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Table of ContentsEXECUTIVE SUMMARY ................................................................... 7INTRODUCTION ................................................................................ 8

LITERATURE REVIEW .................................................................. 10

OBJECTIVES ..................................................................................... 14

PROBLEM STATEMENT ............................................................... 15

HYPOTHESIS DEVELOPMENT ................................................... 15

METHODOLOGY ............................................................................. 16

Variable................................................................................... 16Data Collection ........................................................................ 17

Primary Source: ......................................................................... 17

Secondary Source: ..................................................................... 17

Data Analysis: ............................................................................ 17

BUDGET DATA (2013-14) .......................................................... 18

New Imposed Tax List .............................................................. 18

ANALYSIS OF DATA ...................................................................... 20Effects of raised tax: ................................................................ 20

Effects on Automobile sector: ................................................... 20

Effects of increased GST: ........................................................... 22

Effect of Tax on Salaries: ........................................................... 25

Effects of Tax on construction: .................................................. 27

Effects of increased taxes on education: ................................... 28

Other facts about Pakistan taxation: ......................................... 29CONCLUSION ................................................................................... 30

RECOMMENDATIONS ................................................................... 31

REFERECNES ................................................................................... 32


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Executive SummaryThe data and the report which I have conducted is primarily focused

on the newly imposed taxes and its effects on demand and supply

with its implications. Most states impose tax on some goods and

services as a means of generating revenue. However, taxes also

influence consumer behavior. These influences, along with the

basic financial impact of tax, are evident on supply and demand

curves when tax rates increase or a state imposes new taxes as

happened in recent budget of (2013-2014).

The current crisis in Pakistan needs to be fixed for the jump startof

economy but the new budget had failed to make bold decisions of

extending tax net thus forced austerity on poor by raising tax

which will ultimately increase the prices.

The tax rate has been increased manifold which will affect the

already suffering poor people of Pakistan. The people who are

already paying tax would be paying more than what they were

paying before but those who are out of tax net will again enjoy the

benefits of this budget as they are still out of the tax net.


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IntroductionTax is the amount paid to the taxing authority as direct cash

payment or paid indirectly through purchase of goods or services.The tax is not paid for any specific service rendered by the taxauthority to the taxpayer. The tax paid becomes revenue and isused to provide public goods and services to all citizens.Taxation is the part of public Finance that deals with the means bywhich the government raises revenue from the public by imposingtaxes which revenue is used by the government to provide goodsand services to the public or its citizens (to carry out government

functions)

Prof. Sellingman (American psychologist, educator, and author)Defined a tax as "a compulsory contribution from a person to thegovernment to defray the expenses incurred in the common

interest of all without reference to special benefits conferred".

Purpose of Taxation:

to raise revenues for public needs so that persons can live in a

civilized society

The government increase taxes in order to stabilize prices and

stimulate greater production.

An instrument of fiscal policy influences the direction and

structure of money supply, investments, credits, production,

interest rate, inflation, prices and in general, of the national

economy.

Characteristics of Tax:

A compulsory contribution, all eligible must pay tax.

Tax is a non quid pro quo payment i.e. there is no direct

reward upon payment of tax.


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Penalties are imposed where a person fails to contribute tax.

Tax is a payment made by the tax payers for common benefit.

Tax is charged in relation to income generating activity,

consumption or expenditure.Effects of Taxation:

Personal Income Tax which is presumed to fall entirely on the

legal taxpayers influences decisions to work, save, and invest.

These decisions affect other people.

Corporate Income Tax may simply result to lower corporate profits

and dividends. It may reduce their income of all owners of property

and businesses. The company may move toward raising the prices

of their products.

Tax Evasion:

When there is fraud through pretension and the use of other

illegal devices to lessen ones taxes, there is tax evasion

Under-declaration of income

Non-declaration of income and other items subject to tax

Under-appraisal of goods subject to tariff

Over-declaration of deductions

The incidence of Tax:When a tax is imposed, or its rates etc, are changed, the effects arefelt in different spheres of the economy. The incidence of tax is theresulting changes in the distribution of income available for private

usesIncidence of tax is judged in terms of the money burden ofthe tax.Incidence lies upon that final source from which the tax moneycomes.


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LITERATURE REVIEWBefore going deeply into core of "Tax" let us first start with theanswer to the question that "What is tax in economics?".

A tax(from the Latintaxo;"rate") is a financial charge or other levy

imposed upon a taxpayer (an individual orlegal entity)by astate or

the functional equivalent of a state such that failure to pay is

punishable by law. Taxes are also imposed by manyadministrative

divisions.As mentioned above taxes consist ofdirect orindirect

taxes and may be paid in money or as its labor equivalent.

so in other wordsTaxes reduce both demand and supply, and drive

market equilibrium to a price that is higher than without the tax and

a quantity that is lower than without the tax.

whereas tax also leads to tax incidence which is the analysis of the

effect of a particulartax on the distribution ofeconomic welfare.Tax

incidence is said to "fall" upon the group that ultimately bears the

burden of, or ultimately has to pay, the tax. The key concept is that

the tax incidence or tax burden does not depend on where the

revenue is collected, but on theprice elasticity of demand andprice

elasticity of supply.

So in other words, If buyers have many alternatives to a good with a

new tax, they will tend to respond to a rise in price by buying other

things and will, therefore, not accept a much higher price. If sellers

easily can switch to producing other goods, or if they will respond to

even a small reduction in payments by going out of business, thenthey will not accept a much lower price. The incidence of the tax will

tend to fall on the side of the market that has the least attractive

alternatives and, therefore, has a lower elasticity.
http://en.wiktionary.org/wiki/en:taxo#Latinhttp://en.wiktionary.org/wiki/en:taxo#Latinhttp://en.wiktionary.org/wiki/en:taxo#Latinhttp://en.wikipedia.org/wiki/Legal_personhttp://en.wikipedia.org/wiki/State_(polity)http://en.wikipedia.org/wiki/Administrative_divisionhttp://en.wikipedia.org/wiki/Administrative_divisionhttp://en.wikipedia.org/wiki/Direct_taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Welfare_economicshttp://en.wikipedia.org/wiki/Price_elasticity_of_demandhttp://en.wikipedia.org/wiki/Price_elasticity_of_supplyhttp://en.wikipedia.org/wiki/Price_elasticity_of_supplyhttp://en.wikipedia.org/wiki/Price_elasticity_of_supplyhttp://en.wikipedia.org/wiki/Price_elasticity_of_supplyhttp://en.wikipedia.org/wiki/Price_elasticity_of_supplyhttp://en.wikipedia.org/wiki/Price_elasticity_of_demandhttp://en.wikipedia.org/wiki/Welfare_economicshttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Direct_taxhttp://en.wikipedia.org/wiki/Administrative_divisionhttp://en.wikipedia.org/wiki/Administrative_divisionhttp://en.wikipedia.org/wiki/Administrative_divisionhttp://en.wikipedia.org/wiki/State_(polity)http://en.wikipedia.org/wiki/Legal_personhttp://en.wiktionary.org/wiki/en:taxo#Latin


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Cigarettes are one example where buyers have relatively few

options; we would therefore expect the primary burden of cigarette

taxes to fall upon the buyers.Tax authorities usually require either the buyer or the seller to be

legally responsible for payment of the tax. Tax incidenceis the way

in which the burden of a tax is shared among the market

participants ("who bears the cost?"). Taxes will typically constitute a

greater burden for whichever party has a more inelastic curve

e.g., if supply is inelastic and demand is elastic, the burden will be

greater on the producers.

The following are the general types of tax.

Income taxtax imposed on annual gains or profits earned by

individuals, limited companies, business and other organizations.

e.g. Corp tax, withholding tax,

Value added tax(V.A.T.)A type ofconsumption tax that is

placed on a product whenever value is added at a stage of

production and at final sale. The amount of value-added tax that the

user pays is the cost of the product, less any of the costs ofmaterials used in the product that have already been taxed.

Turnover Tax-Turnover tax is a simplified tax system aimed at

making it easier for small businesses to comply with their tax duties.

The turnover tax system replaces Income Tax, VAT, Provisional

Tax, Capital Gains Tax and Dividends Tax. A small business that is

registered for turnover tax can, however, choose to remain in the

VAT system.Sales taxA tax imposed by the government at the point of sale

on retail goods and services. It is collected by the retailer and

passed on to the state.
http://www.investopedia.com/terms/c/consumption-tax.asphttp://www.investopedia.com/terms/c/consumption-tax.asp


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Excise dutyThis is tax imposed on commodities produced locally

and sometimes on certain imports. e.g. wines , fermented

beverages, locally assembled vehicles, bottled water etc.Customs dutyThis is tax imposed on import or export of

commodities.

Stamp dutyThis is tax imposed on the transfer of property.

Property taxThis is tax imposed on property. Rent is paid to the

central government on some land leases while rates are paid to the

local authority based on the value of property.

Professional taxA tax imposed by the government at the point of

sale on retail goods and services. It is collected by the retailer and

passed on to the state.

Whereas the federal taxes in Pakistan like most of the taxation

systems in the world are classified into two broad categories, viz.,

direct and indirect taxes.

Direct Taxes Direct taxes primarily comprise income tax, along

with supplementary role of wealth tax. For the purpose of thecharge of tax and the computation of total income, all income is

classified under the following heads:

Salaries

Capital gains

Income from business or professions

Income from property

Interest on securities

Income from other sources

DIRECT TAXES :ADVANTAGES1 Economy The tax payer makes the payment to the state directlyand deducting the cost of collection, which directly adds up to theStates income.


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2. Certainty Proper provision for the payment of taxes on times,easy for the State to make financial plans .3. Elasticity The yield from direct tax increases with an increase in

wealth and population.4. Social effects & Distributive justice Redistributes the fruits of

developments, develop civic consciousness among tax-payers. Reduce the glaring inequalities in the distribution of wealthand income. Income tax and inheritance taxes are useful inthis direction.

Indirect Taxes

A tax that increases the price of a good so that consumers areactually paying the tax by paying more for the products. An indirect

tax is most often thought of as a tax that is shifted from one

taxpayer to another, by way of an increase in the price of the good.

Fuel, liquor and cigarette taxes are all considered examples of

indirect taxes, as many argue that the tax is actually paid by the end

consumer, by way of a higher retail price. It further include the

following: sales tax

specific tax

value added tax (VAT)

goods and services tax (GST)

INDIRECT TAXES :ADVANTAGES

1 ConvenienceIndirect taxes are convenient to the tax payers andthe State both. The taxpayer makes the payment when hepurchases commodities in small amount and he does not feel them.The State can collect them in bulk from importers, exporters andproducers.
http://en.wikipedia.org/wiki/Sales_taxhttp://en.wikipedia.org/wiki/Per_unit_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Per_unit_taxhttp://en.wikipedia.org/wiki/Sales_tax


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2. Elasticity With proper adjustments indirect taxes are elasticsources of revenue. If they are imposed on commodities of wideconsumption, the revenue from them can increase to a great extent.3. Difficulty of evasion Ordinarily, indirect taxes cannot be easily

evaded. They are included in the prices of commodities and everytime a commodity is purchased, the purchaser pays the tax

ObjectivesThe objectives of carrying out this research can be listed out asfollows:

1. To identify the effects of Tax on demand & supply.

2. To identity the common myths about Tax.

3. To identify whether the increasing rate of Tax is only a

negative force or it has some positive side also.

4. To find up to which extent does Tax could effect and what

are the changes it could bring in a nation's economy.

5. To identify the basic reasons which leads to increase in

Tax.


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PROBLEM STATEMENT"To which extent does Tax could effect and what are the changes it

could bring in demand and supply as whole."

HYPOTHESIS DEVELOPMENTH1:There is significant relationship between Tax and its effect on

demand & supply.


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METHODOLOGYUnder the research design, the following titles will helps us

providing details about the study.

variable

Data Collection

Variable

Comparative method investigates relationship of an independent

variable on a dependent variable. To bring my research into

consideration I related the causes and effects of the problem

involved.


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Data Collection

The data, which is collected for the purpose of research report, is

divided into following two bases:

Primary Source:

The primary data comprises information is conducted from

"budget do cument (2013-2014)"

Secondary Source:

The secondary data was collected from internet, consulted articles

and references from Library.

Data Analysis:

The data is analyzed on the basis of suitable graphs by using

mathematical techniques.


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Budget data (2013-14)Federal Minister for Finance Ishaq Dar had announced PakistanBudget 2013-14. Salient features of Budget 2013 are as follows.

Budget size: Rs 3.591 trillion

Project Gross Domestic Product (GDP) growth: 48 percent

Fiscal Deficit: 8 percent

Inflation Target: 9.5 percent

Ishaq Dar claimed that Budget 2013 is business friendly. However,

he failed to mention that the increase of GST from 16% to 17% will

open the floodgates for inflation.

New Imposed Tax List

1 Tax exemption for luxury cars was proposed to be abolishedwhile 1200 CC hybrid cars are being exempted from importduty. A concession of 50 percent has been proposed for1200 to 1800 CC cars while Rs 20,000 in tax will beapplicable on purchase of 1000 CC cars.

2 A withholding tax on wedding ceremonies being held atcommercial venues has also been proposed.

3 Tax proposed on foreign movies and dramas

4 Taxes on cigarettes, pan and chaliya have also beenincreased.

5 Minimum tax increased from 0.5% to 1%

6 Taxation of construction sector: A minimum tax on buildersand developers is proposed. The tax will be paid at a therate of Rs.50 per sq.ft. of the constructed area; or Rs.100per square yard of the developed land.


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7 Rate of tax on Business individuals and AOPs will begradually increased from current maximum of 25% forincome exceeding Rs.2.5 million to 35% for income aboveRs.6 million.

8 Taxing Education: An adjustable withholding tax of 5% maybe imposed on annual tuitions fee of Rs.200,000 paid to aneducational institution.

9 Tax on movable assets of Non Resident Pakistanis: A 0.5%tax is proposed on earnings of nonresident Pakistanis.Earnings from this tax will be used for the income supportprogram of the government.

10 5% sales tax is imposed on electricity and gas bills of those

having commercial or industrial connections but remainunregistered. Once they get registered, the sales tax will beremoved from their bills.

11 All taxable supplies made to unregistered persons willinclude 2% further tax, for encouraging registration. Oncethey get registered, they will no longer have to bear thischarge.

12 Finished goods and items having multi-purpose use are

taken out of the reduced rate regime.13 To address the grievances of oil importers, locally producedoil and imported oilseed are being subjected to the similartax regime as imported edible oil.

14 A federal excise duty of 40 paisa per kilogram is imposed onimported canola seed.

15 Federal Excise Duty is imposed at the same rate on personsproviding financial services that are offered by banking andnonbanking institutions.

16 Custom duty on betel nuts (chalia) and betel leaves isincreased


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analysis of dataAlthough the list of increased tax list is very vast and it is difficult toexplain each and everyone in detail. therefore I would primarily will

focus on the basics of those taxes that has large implications on the

economy and specially on demand and supply.

Effects of raised tax:The following are those large Pakistani sectors which will be

effected negatively by the above mentioned taxes that have

increased:

Effects on Automobile sector:

A very interesting fact about imported 1200 CC hybrid cars which

are exempted from the tax that, there is no existence of 1200 CC

hybrid car in the world at this very moment as they have not

launched yet.

The government revised different tax slabs for the registration of

motor vehicle that range from Rs 12,000 to Rs 80,000 depending

on engine capacity. Similarly, the government proposed to

introduce tax on the purchase of cars and jeeps, which range

between Rs 10,000 and Rs 150,000 depending on engine capacity.

Research believed that they will follow the same trend, which will

result in increase in the range of Rs 5,000 to Rs 65,000 in car

prices.

Now moving to the next part i.e. increased tax on local cars

manufacturers. The Pakistan Suzuki Motor Company (PSMC) will

remain on safe harbor as the company doesn't offer any car in this

segment, whereas Indus Motor Company and Honda will become


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victims of the newly imposed tax as they generate around 14

percent and 1.0 percent of sales, respectively from cars above

1800cc engine capacity which will had a following effect on the

demand and supply.

where:

p1 is equilibrium price

p2 is buyers price

p3 is sellers price

triangle A,B,C is indicating deadweight loss

Therefore as an industry of having elastic demand and supply the

buyers and seller will suffer equally. whereas there is might a

chance that the consumer may switch to imported if they offer less

than the local market price hence creating less demand for local

automobiles.

P1

Q1

P2

Effects on Demand & Supply of Local Pakistani

Automobile industryS1

D1

A

B

CP3


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S1

D1

P1

Q1

S2

P2

Quantity demanded

Decrease in supply due to increase in GST

S1

D1

P1

Q1

D2

P2

Q2

Decrease in demand due to increace in Tax on

local automobiles

Effects of increased GST:

The Government increased GST from 16% to 17% which will

ultimately leads to prices.

Effects on priceOne of the most immediate and clear effects of sales tax on supply

and demand involves an increase in the price of consumer goods.

This occurs because businesses must pay more for the productsthey buy, including machinery, office furnishings and computer

equipment. The higher cost of doing business translates into higher

prices for new products.


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Since price serves as the vertical axis of a supply-and-demand

graph, this rising price from sales tax causes the supply curve to

move inward so that reductions in supply correspond to existing

prices, reflecting the fact that businesses can now produce less forthe same amount of money.

Effect on Equilibrium

As sales tax causes the supply curve to shift inward, it has a

secondary effect on the equilibrium price for a product. Equilibrium

price is the price at which the producer's supply matches consumer

demand at a stable price. Since sales tax increases the price of

goods, it causes the equilibrium price to fall. This may mean that it

becomes more difficult for businesses to profit from selling goods,

or that consumers change their buying behavior to purchase less of

the more-expensive goods.

Impact on Demand

While sales tax affects supply directly, it only has an indirect effect

on consumer demand. Besides altering the equilibrium price, which

takes demand into account, sales tax also impacts consumers'buying power. When sales tax rates are high, consumers spend

more money on taxes and have less to spend on additional goods.

This drives down general demand, or forces businesses to reduce

prices to keep demand steady. This effect holds true even for items

that are not subject to sales tax, such as grocery items and

prescription drugs.


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S1

D1

P1

Q1

D2

P2

Q2

Decrease in demand due to increace in GST

S1

P1P2

P3

D1

Q1

Increase GST for inelastic demand

Decisions for BusinessesThe extent to which sales taxes impact supply and demand, and the

form that the impact takes, depends on how businesses incorporate

sales taxes into their pricing structures. When a state government

increases its sales tax, businesses may choose to leave prices

where they are and simply earn less profit per sale. Businesses

also can choose to pass these taxes along to customers through

increased prices, which can have a significant impact on supply and

demand. Governments examine these issues before imposing new

taxes, and businesses work flexibility into their pricing structures to

account for slight changes to sales tax rates.


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For items such as medicines, fuel, cooking oil, wheat or any items

with having an inelastic demand the above graph represent the

effect on increased GST on it. in an inelastic demand curve thebuyers suffer more than sellers as the portion of wellbeing of buyer

is larger in size than the supplier.

Effect of Tax on Salaries:

The budget data represent the following taxes on income.

S.

No.Taxable

Income(per

annum)

Existing

TaxLiability

ProposedTax

LiabilityTax

ImpactTax

Impactin

Percentage1 400,000 - - - 0%

2 600,000 10,000 12,500 2,500 25%

3 800,000 22,500 27,500 5,000 22%

4 1,200,000 62,500 67,500 5,000 8%

5 1,600,000 110,000 115,000 5,000 5%

6 2,000,000 170,000 170,000 - 0%

7 2,400,000 245,000 235,000 (10,000) -4%

8 2,800,000 480,000 310,000 (170,000) -35%

9 3,200,000 560,000 395,000 (165,000) -29%

10 3,600,000 640,000 487,500 (152,500) -24%

11 4,000,000 720,000 587,500 (132,500) -18%

12 4,400,000 800,000 697,500 (102,500) -13%

13 4,800,000 880,000 807,500 (72,500) -8%

14 5,200,000 960,000 917,500 (42,500) -4%

15 5,600,000 1,040,000 1,027,500 (12,500) -1%


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A very interesting fact about the salaries or income tax is that

as the amount per annum salaries increases the ratio for taxdecreases as we can see on in the above mentioned graph which

clearly indicates this scenario as the person having a salaries of

400000 per annum pays 0% tax but as it increases from 400000 to

600000 the amount or the effect of tax is higher and it goes on till

the salaries limit of 1200000 and after that as the amount per

annum salaries increases the ratio of tax decreases from 22% to( -

35%.).The increased rate of taxes on salaries plus no increase in salaries

in the budget leads to lower demand which is also backed by the

increased GST therefore creating a loads of burden on general

public.

0%

25%22%

8%5%

0%

-4%

-35%

-29%

-24%

-18%

-13%

-8%

-4%-1%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000

Budgetincreased

Tax

ratio

Salaries per Anum

Laffer or non-linear curve for Salaries


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S1

D1

P1

Q1

D2

P2

Q2

Decrease in property demand due to increace in

Tax on construction

Effects of Tax on construction:

Budget data represent the following;

"Taxation of construction sector: A minimum tax on builders and

developers is proposed. The tax will be paid at a the rate of Rs.50

per sq.ft. of the constructed area; or Rs.100 per square yard of the

developed land."

Increase in tax on construction will generally leads to increase in

price of construction which will affect the real estate business as thedemand for construction will decrease and therefore creating a gap

between buyers and property owners.

The effect of tax can be further elaborated by the following graph.

This decrease is a natural phenomena of buyers as anything differs

from the point of equilibrium will have a direct effect on it,

furthermore the buyer may try to find some ways of evasion from

taxes which could lead to black market.


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Effects of increased taxes on education:

Taxing Education: An adjustable withholding tax of 5% imposed on

annual tuitions fee of Rs.200,000 paid to an educational

institution.(budget 2013-14)

Institution, schools, collages, and universities are now compelled to

increase their tuition fee as they can't pay this very tax from thepocket of their own. therefore equal burden will be shared on both

educational departments and students thus proving to an unjustified

tax on a sector which require extra input from the Government to

increase the literacy rate so that the current overall crises could be

fight down.

A nation having comprises of mostly youth is well in need of such

measures to guide this force in the right direction towards thebetterment of its society and to empower those upcoming talent

which could light up the torch for a nation getting dark in crises.

therefore I myself as a student condemn such step which could lead

to be negative on this light giving sector i.e. education.

P1

Q1

P2

Effects on Demand & Supply on educational

sector of pakistanS1

D1

A

B

CP3


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Other facts about Pakistan taxation:

o There are 1.611 million people who frequently embark on

international tours but do not pay a single penny as income tax.

1. About 584,730 Pakistanis have multiple accounts in domestic andmultinational banks, but do not possess NTNs.

2. Over 56,000 people live in posh areas and more than 20,000

people own luxury cars, still pay no income tax.

3. There are 66,736 individual consumers who pay large utility bills,

but no income tax.

4. More than 13,000 people have licenses of both prohibited and non-

prohibited weapons, but they do not possess an NTN.

5. There are 25,130 people who are engaged in lucrative professionslike medicine, engineering, law and chartered accountancy, but they

do not pay a single penny as income tax.

6. Nearly three million people possess a National Tax Number (NTN),

but only 1.4 million of them filed income tax returns last year.

These figures, though do not present the comprehensive situation,

clearly show that Pakistan is a paradise for tax-dodgers. While aclerk is made to cough up taxes from an income which does not

give him a decent living, those who live a life of princes are all

exempt. And those who call themselves business community are

totally immune to cough up because they do not document their

transactions. Currently, 70% of the economy is informal and

remains out of tax net. Same is the case of filthy rich whose life

style suggest they should contribute but they do not make any

contribution.


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ConclusionNormally, the civilized societies keep a fine balance between the

direct and indirect taxes.Direct Taxes are the taxes that are

levied on the income of individuals or organizations. Income

tax, corporate tax,inheritance tax are some instances of direct

taxation. Income tax is the tax levied on individual income from

various sources like salaries, investments, interest etc. Corporate

tax is the tax paid by companies or firms on the incomes they

earn. These taxes are paid by the rich.

The common man pays indirect taxes through various means.

Indirect taxes are those paid by consumers when they buy goods

and services. These include excise and customs duties. Customs

duty is the charge levied when goods are imported into the country,

and is paid by the importer or exporter. duty is a levy paid by the

manufacturer on items manufactured within the country. Usually,these charges are passed on to the consumer. Same is the case

withValue-added Tax (VAT) and General SalesTax (GST) but the

experts classify it under direct taxes. For poor strata of the society,

the indirect taxes constitute a large chunk of their income while it is

less than fraction of the income and resources of the rich.

Generally, the direct taxes should exceed the indirect taxes in a

poor country. But in the case ofPakistan,it has always been the

other way round. In the budget just presented, direct taxes

constitute just 38% of total tax revenue. The rich have been

spared of their obligation to pay up. Without making contribution

to the exchequer the money amassed by the rich will continue to

be ill-gotten if not plundered from the hapless poor.
http://en.wikipedia.org/wiki/Direct_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28Australia%29http://maps.google.com/maps?ll=33.6666666667,73.1666666667&spn=10.0,10.0&q=33.6666666667,73.1666666667%20(Pakistan)&t=hhttp://maps.google.com/maps?ll=33.6666666667,73.1666666667&spn=10.0,10.0&q=33.6666666667,73.1666666667%20(Pakistan)&t=hhttp://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28Australia%29http://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Direct_tax


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Page31

RecommendationsWhat needs to be done is to restore the faith of the people andimplement a multi-dimensional tax reforms where:

1 Taxpayers should be encouraged and there must be faithrestored by stemming out corruption.

2 Tax Net should be constantly widened.3 More focus must be given to direct taxation.4 Meaningful tax rebates and reliefs are need to be

introduced for the less able sections of the society.5 Such a Tax structure should be introduced that could

encourage foreign/local investments in Key Sectors with

tax-breaks for transfer of technology, e.t.c. as may be

required in a particular sector.

6 Tax rates structure are required to be made so that the taxpeople according to their means could become more

affluent in contributing more to the treasury.


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REFERECNESInformation about Sales Tax Effect on Supply & Demand. available at(http://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmldate

27 June at 5:50 pm

Information about Tax details. available at (http://www.investopedia.com/exam-

guide/cfa-level-1/microeconomics/tax-effects.asp) date 27 June at 6:10 pm

Information about Tax definition available

at(http://en.wikipedia.org/wiki/Tax_incidence)date 27 June at 6:30 pm

Information about Direct tax details available at

(http://urdumail.wordpress.com/tag/indirect-tax/)date 27 June at 8:40 pm

Information detail about automobiles

http://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory14-6-

2013_pg5_3date 4 July at 9:13

Information about GST effect availablehttp://smallbusiness.chron.com/sales-tax-

effect-supply-demand-20815.htmldate 5 July 11:05 pm
http://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asphttp://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asphttp://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asphttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Tax_incidencehttp://urdumail.wordpress.com/tag/indirect-tax/http://urdumail.wordpress.com/tag/indirect-tax/http://urdumail.wordpress.com/tag/indirect-tax/http://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory_14-6-2013_pg5_3http://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory_14-6-2013_pg5_3http://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory_14-6-2013_pg5_3http://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.htmlhttp://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory_14-6-2013_pg5_3http://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C14%5Cstory_14-6-2013_pg5_3http://urdumail.wordpress.com/tag/indirect-tax/http://en.wikipedia.org/wiki/Tax_incidencehttp://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asphttp://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asphttp://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.html

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