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    Fiscal Policy

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    Shoaib Rehman
    The document discusses fiscal policy in Pakistan, outlining how the government uses tax revenue and spending to influence the economy. It describes the objectives, tools, and types of fiscal policy, as well as issues around budget deficits. Key points include expanding employment and growth through fiscal policy while controlling inflation and balancing various economic sectors.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Fiscal Policy

    Uploaded by

    Shoaib Rehman
    41 views24 pages
    The document discusses fiscal policy in Pakistan, outlining how the government uses tax revenue and spending to influence the economy. It describes the objectives, tools, and types of fiscal policy, as well as issues around budget deficits. Key points include expanding employment and growth through fiscal policy while controlling inflation and balancing various economic sectors.

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    The document discusses fiscal policy in Pakistan, outlining how the government uses tax revenue and spending to influence the economy. It describes the objectives, tools, and types of fiscal policy, as well as issues around budget deficits. Key points include expanding employment and growth through fiscal policy while controlling inflation and balancing various economic sectors.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views24 pages

    Fiscal Policy

    Uploaded by

    Shoaib Rehman
    The document discusses fiscal policy in Pakistan, outlining how the government uses tax revenue and spending to influence the economy. It describes the objectives, tools, and types of fiscal policy, as well as issues around budget deficits. Key points include expanding employment and growth through fiscal policy while controlling inflation and balancing various economic sectors.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 24

    Presentation Of

    Macro
    Economics

    Hamza
    Presented Afeef Sikander Sohail Taimoor
    Rehman
    By: Javed Fiaz Ejaz Rashid Khalid
    Butt
    Fiscal
    Policy
    Introduction:


     Fiscal policy is an important part of overall economic
    Framework of country.

     The Fiscal policy is formed by Central Govt (Federal


    Govt)----Ministry of Finance.
    “According to Arthur Smith”

     Fiscal policy refers to the policy under which
    government uses its expenditure and revenue
    program to produce the desirable effect of national
    income , production and employment.
    Collection of Revenue:

     Taxes
     Direct tax
     Indirect Tax
     Fees
     Aids
     Fines
     Loan
    Objectives of Fiscal Policy:
     Development of country

     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
    Instrument or Tools of
    Fiscal Policy:

     Implementing the Fiscal policy of the Nation
     Govt revenue
     Expenditure
     Budget

     The Budget of the Govt is main instrument of the


    Fiscal Policy.
    Budget:

     The Estimated Revenue 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.
    Methodes of Raising
    funds

    Governments expenditure can be 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
    Types of Taxes
    1) Direct:

    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

    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
    Common issue regarding
    collection of taxes

     Tax Evasion
    It is an illegal practice where a person, organization or
    corporation intentionally avoids paying his/her/its
    true tax liability.
    Causes of Tax Evasion

     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
    Weakness of Tax System

    The principal reason lies in the structural weaknesses
    of Pakistan’s tax system which is:

     Complex
     Inefficient
     Unfair
    Principles of tax Policy

     Lowering tax rates
     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
    Types of fiscal Policy
     Expansionary:

    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

     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.
    Fiscal Deficit

    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
     Lower Revenue
     Inflation
    Economist’s opinions

    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.
    Factors of Deviation in
    fiscal Deficit

    The deviation from initial estimates was largely on
    account of three factors:

     underestimation of subsidies
     underestimation of interest payments
     overestimation of FBR tax revenue.
    Why Pakistan is Facing
    budget shortfall

     Increase in non-development expenditure

    32%
    Of the total expenditure is spend 32%

    on the Defense &


    68%
    Interest Payments.

    Interest & Defense Total Expanditure


    Why Pakistan is Facing
    budget shortfall(Cont.)

     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.
    How Pakistan can avoid
    Surge in Fiscal Deficit?

     Govt should impose new taxes
     Increase the price of utilities
     Decrease in development spending
    Conclusion

     Pakistan fiscal position 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.

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