A major reason of Pakistan’s volatile economic history is the state’s poor revenue generation.

Low tax
revenues are in turn caused by tax evasion and a legal structure that allows for too many exemptions and
loopholes. Pakistan’s tax-to-GDP ratio is just 9 percent. is puts Pakistan in the 155th position out of
179 nations on the Heritage Foundation’s Index of Economic Freedom. Only oil-rich countries that
impose few taxes perform worse. Fewer than three million of Pakistan’s population of 175 million pay
any income tax. A huge and buoyant informal (underground) economy, estimated to be anywhere from 30
to 80 percent of the real economy, goes untaxed,
Clearly, tax evasion and the inability of the regime to tax the informal sector mean that it has fewer
resources for education, health, infrastructure and development. A perennial debt crisis has affected
Pakistan’s economy largely because its expenditures, many of which are justified, are well in excess of
revenue, forcing the country to go to foreign (and domestic) borrowers. is indebtedness affects issues of
political economy at the domestic and international level.

the main culprit is tax evasion. Pakistan’s tax evasion problem is caused by three things: poor legal
frameworks and bureaucratic capabilities with regard to revenue extraction; corruption in the form of a
predatory class that privileges certain sectors and vested interests with unjustified tax “exemptions”; and
elites who cut deals with the state to avoid taxation, made possible by an anemic agriculture income tax
(agriculture makes up 22 per- cent of Pakistan’s GDP, but only 1 percent of its tax revenue). Research
suggests that with a more extensive, transparent, progressive and equitable tax structure, government
revenue could easily double, thus closing the between defence development and expense

Method of tax
Avoidance Tax includes situations when people eliminate or reduce tax by following a transaction or many
transactions that are legal. The income tax department provides many provisions through which the people can go for
Tax Avoidance such as refunds, credits, benefits, and many other kinds of entitlements. The various methods of Tax
Avoidance are:

 Legal entities
 Country of residence
 Double taxation

Legal entities are a method that people follow when they want to go for Tax Avoidance. Under this method of
Avoidance Tax, people legally defer paying personal taxes by creating a legal separate entity to which they donate
their property. The legal separate entity that is set up is often a foundation, company, or trust. The properties are
transferred to the trust or company, as a result of which the income that is earned belongs to this entity and not by the
owner. Usually, people are taxed personally on earnings and property that they own and thus by transferring property
to a legal separate entity, individuals can avoid personal taxation although certain taxes such as corporate taxes are
still applicable. In order to go for Tax Avoidance, the foundation, company, or trust can also avoid corporate taxes if
the entity is set up in a jurisdiction that considered offshore

Country of residence is another method that people adopt when they go for Avoidance of Tax. Under this method
of Tax Avoidance, the company or person changes the tax residence to a place that is a tax haven in order to lower
the amount of taxes that they pay. Under this method, the person may also become a regular traveler so that taxation
can be avoided. Double taxation means that many countries charge taxes on the income that has been earned inside
that country without taking into consideration, the resident country of the firm or person. So that people do not have to
pay double taxes, once in the country where the income has been earned and then again in the resident country,
many countries have gone for bilateral treaties of double taxation with other countries. This helps tax-payers as they
are able to avoid paying double taxes.

Tax Avoidance reduces the revenue of the government and also brings into disrepute, the tax system. Ideally,
Avoidance of Tax should not be encouraged and the government should also take measures in order to prevent

The level of Evasion Tax also depends on the chartered accountants and tax lawyers who help companies, firms,
and individuals evade paying taxes. Tax Evasion is a crime in all major countries and the guilty parties are subjected
to imprisonment and fines. The various methods of Tax Evasion are:

 Smuggling
 Customs evasion duty evasion
 Value added tax evasion
 Illegal income tax

Smuggling is a method of Tax Evasion, following which people export or import foreign goods through routes that
are unauthorized. People resort to smuggling for they want to avoid paying total customs duties that are chargeable
and also when they want to import items that are contraband. Customs duty evasion is another method of Tax
Evasion under which the importers evade paying customs duty by false declarations of the description of the product
and quantity. The importers in order to evade paying customs duty also resort to under-invoicing.

Another method of Tax Evasion is value added tax evasion under which the producers who collect from the
consumers the value added tax evade paying taxes by showing less sales amount. Many people earn money by
means that are illegal such as theft, gambling, and drug trafficking and so they do not pay tax on this amount and
thus this is another method of Tax Evasion that is called illegal income tax evasion.

Tax Evasion results in the loss of revenue for the government and so ideally, no one should be indulging in it and the
Indian government must also take steps in order to stop Evasion of Tax by the people.