Fiscal policy is an important part of overall economic Framework
The Fiscal policy is formed by Central Govn (Federal Govn)----
Ministry of Finance.
• What is a Fiscal Policy?
According to Samuelson Fiscal Policy is concerned with all
those arrangements which are adopted by the Government
to collect the revenue and make the expenditures so that
economic stability could be attained/maintained without
inflation and deflation.
Fiscal policy means the use of taxation, Public
expenditure by the Government for purposes to
“Stabilization” and “Development”.
Fiscal policy to refers the policy under which government uses its
expenditure and revenue program to produce the desirable effect
of national income , production and employment.
Development of country
Expansion of Employment
Fixation of Govt Policy
Check imbalance the various sectors
Reduce inequality the income and wealth
Increasing the Investment
Optimum allocation of Resources
Implementing the Fiscal policy of the Nation
The Budget of the Govn is main instrument of the Fiscal Policy.
The Estimated Revenue and Expenditure of he next year and the
Future year of the Govt with specific time.
Fiscal policy involves the Revenue and Expenditure pattern to
achieve the range of Economics Objectives.
Governments expenditure can be funded in a number of different
Taxation of the population
Borrowing money from the population,resulting in a fiscal deficit.
External resources: Foreign grant and loans etc
Direct tax is the one paid directly to the Govt. By the persons on
whom it is imposed
Income Tax, Property Tax, Capital Value Tax etc
It is collected by an intermediary(such as a retail store) from the
person who bears the ultimate economic burden of the tax(such as
Comparison of Taxes in 2012
Growth rate increased by
16.2% in 2013
Major part of this increase
came from the rise in the
It is an illegal practice where a person, organization or corporation
intentionally avoids paying his/her/its true tax liability.
People do not want to disclose their true income
Too many unlawful business activities such as
drugs, hoarding, black money, etc.
No fear of punishment
Complex tax structure
Uncontrolled inflation and high cost of living
Low level of literacy among tax payers
Some economic sectors are exempted: Agriculture,real estate
and capital gain
The principal reason lies in the structural weaknesses of
Pakistan’s tax system which is:
Lowering tax rates
Taxing all value additions including services,not just
Establish an effective and efficient tax system.
Overcome the culture of tax avoidance and evasion
An increase in government purchases of goods and services, a decrease
in net taxes, or some combination of two for the purpose of increasing
aggregate demand and expanding real output.
Aggregate demand= consumption+investment+Govt spending+net Exports
A decrease in government purchases of goods and services, an increase in
net taxes, or some combination of the two for the purpose of decreasing
aggregate demand and thus controlling inflation.
Fiscal deficit is the difference between the government’s
expenditures and its revenues (excluding the money it’s borrowed).
A country’s fiscal deficit is usually communicated as a percentage
of its gross domestic product (GDP).
Fiscal Deficit=Govt. Spending –Govt. Earning
Causes of Fiscal Deficit
High Govt. Spending
Economist John Maynard Keynes believed that deficits help
countries climb out of economic recession.
On the other hand, fiscal conservatives feel that governments
should avoid deficits in favor of a balanced budget policy.
Too many factories are closed or in partial production for want of
power and gas
Tax Evasion by well performing industries
Corruption by Tax Officials
Law and Order causing burden on the Expenditure side by way
of compensation to the affected and mobilization to send forces
to such areas.
FBR should impose new taxes
Increase the price of utilities
Decrease in development spending
Pakistan fiscal position worsened because of unexpected events
occurred on domestic and external scene.
High proportion of revenues being spent on defense and interest
Lower industrial productivity leads to lower tax collection because
of high interest rates.
Pakistan needs to increase tax base by imposing tax on
agriculture and capital gain to increase revenue.