it is about tax system

1. Introduction
 Group Members Basit Saeed Faiq Kamal Faisal
Khalid
 Topic Tax system

2.  What is Tax system
 Methods of Taxation
 Tax System of Pakistan
 A look at some figures

3. What Is Tax system ?
 Ten Principles of Economics: The Government
can sometimes improve market outcomes.
 From where does the Government gets its
Funds ?????????????
 Taxes
 e.g. In a vegetable market the T.M.A takes
Taxes and in return provides shades and a
clean space

4. Central Government Tax as
GDP

5. TAXES AND EFFICIENCY
 Policymakers have two objectives in
designing a tax system...
 Efficiency
 Equity

6. TAXES AND EFFICIENCY
 One tax system is more efficient than another
if it raises the same amount of revenue at a
smaller cost to taxpayers.
 An efficient tax system is one that imposes
small deadweight losses and small
administrative burdens.

7. TAXES AND EFFICIENCY
 The Cost of Taxes to Taxpayers
 The tax payment itself
 Deadweight losses
 Administrative burdens

8. Administrative Burdens
 Complying with tax laws creates additional
deadweight losses.
 Taxpayers lose additional time and money
documenting, computing, and avoiding taxes over
and above the actual taxes they pay.
 The administrative burden of any tax system is
part of the inefficiency it creates.

9. Dead weight losses
 If government raises the tax on cold drinkes
people stop taking cold drinks
 Similarly if taxes are increased on earning
people start to work less and enjoy more
leisure
 Taxes reduces incentives and hence dead
weight losses are increased

10. Methods of Taxation
Marginal taxes v/s Average Taxes
Lump sum Taxes

11. MARGINAL TAX RATES VERSUS
AVERAGE TAX RATES

12. Lump – Sum Taxes
 A lump sum tax is a tax of a fixed amount that
has to be paid by everyone regardless of the
level of his or her income. Lump sum taxes
are considered efficient taxes because they
do not influence a person’s decision on how
much to work.
 But why are they no lump sum taxes ????

13. Lump sum Taxes a Failure in
Pakistan
 For explaining why lump sum taxes cannot work in Pakistan lets
consider only two types of a people for easiness of a MNA and a
Unskilled laborer. Average monthly pay of MNA is 360000 and that
of laborer is 5000 so if we take the average and 15% to both and lets
analyze the results
 360000+5000=365000 (adding)
 365000/2=185200 (taking average)
 (27375/360000)*100=7.6% TAX for MNA
 (27375/5000)*100=547.6% TAX for laborer
 Now the results shows that the laborer have to 5.4 times more than
he earns and the MNA only has to 7.6 percent of his income

14. TAXES AND EQUITY
How should the burden of taxes be divided
among the population?
How do we evaluate whether a tax system is
fair?

15. Principles of Taxation
Benefits principle
Ability-to-pay principle
$

16. Benefits Principle
 The benefits principle is the idea that people
should pay taxes based on the benefits they
receive from government services.
 An example is a gasoline tax:
 Tax revenues from a gasoline tax are used to
finance our highway system.
 People who drive the most also pay the most
toward maintaining roads.

17. Ability-to-Pay Principle
 The ability-to-pay principle is the idea that
taxes should be levied on a person according
to how well that person can shoulder the
burden.
 The ability-to-pay principle leads to two
corollary notions of equity.
 Vertical equity
 Horizontal equity

18. Ability-to-Pay Principle
 Vertical equity is the idea that taxpayers with
a greater ability to pay taxes should pay
larger amounts.
 For example, people with higher incomes should
pay more than people with lower incomes.

19. Ability-to-Pay Principle
 Vertical Equity and Alternative Tax Systems
 A proportional tax is one for which high-income
and low-income taxpayers pay the same fraction
of income.
 A regressive tax is one for which high-income
taxpayers pay a smaller fraction of their income
than do low-income taxpayers.
 A progressive tax is one for which high-income
taxpayers pay a larger fraction of their income
than do low-income taxpayers.

20. Tax Incidence—the Study Of Who
Bears The Burden Of Taxes
 WHO PAYS THE CORPORATE INCOME TAX?
 People pay all taxes
 The owners, workers or the costumers
 E.g. if tax is increased on fertilizer company who
will be effected
1. Owners
2. Workers
3. Customers

21. The Federal Government
 Budget Surplus
 A budget surplus is an excess of government
receipts over government spending.
 Budget Deficit
 A budget deficit is an excess of government
spending over government receipts.

22. The Federal Government
 Financial Conditions of the Federal Budget
 A budget deficit occurs when there is an excess of
government spending over government receipts.
 Government finances the deficit by borrowing from
the public.
 A budget surplus occurs when government
receipts are greater than government spending.
 A budget surplus may be used to reduce the
government’s outstanding debts.

23. Governments Spending
 Federal Government Spending
 Expense Category:
 Social Security
 National Defense
 Medicare
 Health
 Other

24. Tax System Of Pakistan
 Direct taxation
 Indirect taxation

25. Direct Taxation
 Salaries
 Interest on securities;
 Income from property;
 Income from business or professions
 Capital gains; and
 Income from other sources.

26. Indirect Taxation
 Customs: goods exported or Imported
 Central Excise: limited # of goods produced and
services provided . It is charged on the basis of value
or retail price. Some items are, however, chargeable to
duty on the basis of weight or quantity
 Sales Tax : goods imported, supplies made in Pakistan
by a registered person
 Tax on Companies: All public companies (other
than banking companies) incorporated in
Pakistan are assessed for tax at corporate rate of
39%.

27. Ratio Of Direct Taxes And
Indirect Taxes In Total Taxes

28. Sales Tax on Imports

29. Sales Tax On Domestic Products