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Fiscal policy
This document provides an overview of macroeconomics concepts related to fiscal policy in Pakistan. It discusses key topics like the objectives, instruments, and impact of fiscal policy. It notes that Pakistan is facing budget shortfalls due to high government spending, lower tax revenues, and factors like tax evasion. To avoid increasing fiscal deficits, the document suggests that Pakistan could impose new taxes, increase utility prices, and decrease development spending.
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Fiscal policy
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- 3. Fiscal policyis an important part of overall economic Framework of country. The Fiscal policy is formed by Central Govt (Federal Govt)----Ministry of Finance. Introduction:
- 5. Fiscal policyrefers to the policy under which government uses its expenditure and revenue program to produce the desirable effect of national income , production and employment. “According to Arthur Smith”
- 6. Taxes Directtax Indirect Tax Fees Aids Fines Loan Collection of Revenue:
- 7. Development ofcountry Expansion of Employment Fixation of Govt Policy Economic Growth Controlling Inflation Check imbalance the various sectors Reduce inequality the income and wealth Increasing the Investment Optimum allocation of Resources Objectives of Fiscal Policy:
- 8. Implementing theFiscal policy of the Nation Govt revenue Expenditure Budget The Budget of the Govt is main instrument of the Fiscal Policy. Instrument or Tools of Fiscal Policy:
- 9. The EstimatedRevenue and Expenditure of the 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. Budget:
- 10. Governments expenditure canbe funded in a number of different ways: Taxation of the population Non Tax Borrowing money from the population,resulting in a fiscal deficit. External resources: Foreign grant and loans etc Methodes of Raising funds
- 11. 1) Direct: Direct taxis the one paid directly to the Govt. By the persons on whom it is imposed Income Tax, Property Tax, Capital Value Tax etc 2) Indirect: 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 the customer). Sales Tax Types of Taxes
- 12. Tax Evasion Itis an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Common issue regarding collection of taxes
- 13. People donot 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 Causes of Tax Evasion
- 14. The principal reasonlies in the structural weaknesses of Pakistan’s tax system which is: Complex Inefficient Unfair Weakness of Tax System
- 15. Lowering taxrates Taxing all value additions including services,not just manufacturing sector Establish an effective and efficient tax system. Overcome the culture of tax avoidance and evasion Principles of tax Policy
- 16. Expansionary: An increasein 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 Contractionary: 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. Types of fiscal Policy
- 17. Fiscal deficit isthe 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 Lower Revenue Inflation Fiscal Deficit
- 18. Economist John MaynardKeynes 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. Economist’s opinions
- 19. The deviation frominitial estimates was largely on account of three factors: underestimation of subsidies underestimation of interest payments overestimation of FBR tax revenue. Factors of Deviation in fiscal Deficit
- 20. Increase innon-development expenditure Why Pakistan is Facing budget shortfall 32% 68% Interest & Defense Total Expanditure 32% Of the total expenditure is spend on the Defense & Interest Payments.
- 21. Too manyfactories 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. Why Pakistan is Facing budget shortfall(Cont.)
- 22. Govt shouldimpose new taxes Increase the price of utilities Decrease in development spending How Pakistan can avoid Surge in Fiscal Deficit?
- 23. Pakistan fiscalposition worsened because of unexpected events occurred on domestic and external scene. High proportion of revenues being spent on defense and interest payments. 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. Conclusion