The document discusses taxation systems. It begins by introducing the group members and topic, which is the tax system. It then defines what a tax system is and discusses the key principles of taxation, including efficiency, equity, benefits received, and ability to pay. It also outlines different tax types like direct and indirect taxes. The document then focuses on Pakistan's tax system, describing direct taxes like income tax and indirect taxes like customs, central excise, and sales tax. It provides figures on the ratio of direct to indirect taxes in Pakistan's total tax revenues.

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