Tax Evasion in Pakistan: Determinants and Requisite Policy Interventions

Abstract

Tax evasion in Pakistan is very high that has led to deteriorated economic situation and lack of public service delivery. The paper analyzes four variables of tax morale - feelings of guilt and shame; lack of trust on government; perception about others citizens paying taxes; and level of penalties - as determinants of tax evasion in Pakistan. The paper includes survey carried out through a questionnaire distributed among carefully selected sample of 400 salaried employees to gather responses that were analyzed using t-test. The findings suggest that perception about utilization of money, elements of shame, perception about other citizens’ compliance behavior and level of penalties affect tax evasion. However, variables of guilt and perception about corruption do not have significant impact on evasion behavior. Some policy interventions have been suggested to curb the menace of evasion at the end of the paper. These policies include motivating taxpayers through methods like hypothecation, imposition of fines and penalties and publishing names of defaulters through media and tax department website.