Who Bears the Burden of Federal Taxes in Pakistan?

The main objective of the tax system of a country is to generate enough revenue for the government, and it is always desired that taxes should be such that there is less burden on the poor and more on the rich. Such an attribute of the tax system becomes even more desirable for a country like Pakistan where the present distribution of resources is highly unequal and a large proportion of the population is living at the subsistence level. As in many other developing countries, in Pakistan also indirect taxes dominate in terms of their contribution to total tax revenue. It is argued that indirect taxes arc generally regressive since they arc levied on consumption, and people in the lower-income classes devote relatively greater proportion of their incomes to consumption. In this study, we have tried to estimate the incidence of the federal taxes on households in different income groups. We accomplished this by calculating effective tax rates (percentage of income contributed to taxes) for them.