“In the Name of Allah, the Most Gracious, the Most Merciful"

WHY IN PAKISTAN PEOPLE DON’T PAY TAXES

ABDUL WAHAB QURESHI

Reg #461-FMS/BSAF/S20
MOHAMMAD HAMZA FARMAN
Reg #455-FMS/BSAF/S20
HAMZA TARIQ
Reg #456-FMS/BSAF/S20
AQIB HUSSAIN
Reg #456-FMS/BSAF/S20

DR ZAHEER ABBAS
CHAIRMAN
DEPARTMENT BUSSINESS
ADMINISTRATION

07 semester 2022-23

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Faculty of Management Sciences
Department of Business Administration
 Why in Pakistan People Don’t Pay Taxes

Submitted by

Abdul Wahab Qureshi

Reg #461-Fms/Bsaf/S20
Mohammad Hamza Farman
Reg #455-Fms/Bsaf/S20
Hamza Tariq
Reg #456-Fms/Bsaf/S20
Aqib Hussain
Reg #456-Fms/Bsaf/S20

Supervised by
Dr Zaheer Abbas
Chairman
Department Business Administration

07 semester 2022-23
Final Year Project Report Submitted to the Department Of Business Administration
As A Part of the Course of Studies for Bachelor’s Degree in Accounting and Finance Of
The International Islamic University, Islamabad

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Faculty of Management sciences
Department of Business Administration
 DEDICATIONS
As well as everything that I do, I would be honor to dedicate this Compilation to my
parents. The two person that gave the tools and values necessary to be where I am
standing today. My parents support me on every step I make, and decision I take;
but is necessary to understand that they let me take my decisions alone in order for
me to learn from my personal mistake and as my father says to "learn and grow
from each seatback". I will never finish to thank my father and my mother for all
the opportunities that they have offer and gave me, for all the teachings that they
have told me and for every advise that come out of their mouth. I am so graceful
with them for trusting me that I would do a Good job in the university, and letting
me come to achieve a higher education.
So that's why I dedicate this Portfolio to my parents, whom expect my effort on
everything that I do, and I think that this Compilation is the perfect image and
reflection of my effort and hard work in Reading and Writing Skills. Mama and
Papa: I hope that I can make you proud, the same way that I am proud of having
both of you as my parents and as the compass of my life!
 ACKNOWLEDGMENT

"It is not possible to prepare a project report without the assistance &
encouragement of other people. This one is certainly no exception."

On the very outset of this report, I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor.
Without their active guidance, help, cooperation & encouragement, I would not
have made headway in the project.

I am ineffably indebted to Dr Zaheer Abbas for conscientious guidance and

encouragement to accomplish this assignment.

I am extremely thankful and pay my gratitude to my faculty management sciences

for valuable guidance and support on completion of this project in its presently.

I extend my gratitude to ISLAMIC INTERNATIONAL UNIVERSITY

ISLAMABAD for giving me this opportunity.

I also acknowledge with a deep sense of reverence, my gratitude towards my

parents and member of my family, who has always supported me morally as well
as economically.

At last but not least gratitude goes to all of my friends who directly or indirectly
helped me to complete this project report.

Any omission in this brief acknowledgement does not mean lack of gratitude..
 DECLARATION
I / We hereby declare that the work presented in this report is my/our own effort,
except where otherwise acknowledged and that the report is my/our own
composition. No part of this project report has been previously presented for any
other degree.

Date __________ _____________ (Full Name)

 TABLE OF CONTENTS

1 SUMMARY
2 TAX, TAXATION
3 CLASSIFICATION
4 TAXATION SYSTEM
5 TYPES OF TAXES
6 TAXATION POLICY
7 PROBLEMS
8 TAX COLLECTION
9 TAX EVASION
10 INTRODUCTION
11 MATERIALS AND METHOD(S) OR PROCEDURE(S)
12 RESULTS or FINDINGS
13 REGRESSION ANALYSIS
14 DISCUSSION
15 CO-REALTION TEST
16 MULTICOLLINEARITY TEST
17 HETROSKADICITY TEST
18 AUGMENTED DICKEY-FULLER TEST
19 PHILLIPS-PERRON TEST
20 CONCLUSION
21 REFERENCES
Summary:

Our topic is why people of Pakistan don’t pay taxes what are the issues and challenges and what are the possible
solutions. We have review the literature and studied ten articles and selected most important and repeated independent
variable in the articles. On which we have run the regression our dependent variable Is Contribution of tax in GDP and
our Independent Variables are agriculture share in GDP, literacy rate, share of urban population, an inflation. Using
a sample of past ten year data of Pakistan tax elements, we empirically investigate factors that determine why people
didn’t pay tax from year 2010-2022. We apply a panel data model to estimate the results. Further, findings show the
relationship of inflation with tax contribution to GDP is negative and other independent variables show positive
relationship. First we have done the theoretical portion and then statistically run the regression and interpenetrate their
results.

Taxation:
Taxation in Pakistan is a system of compulsory contributions to state revenue, levied by the government on individuals or
businesses, based on ability to pay, as a means of making individuals or organizations contribute towards the costs of
public services. The country’s tax system includes direct and indirect taxes that are levied by the federal and provincial
governments. The tax system in Pakistan is administered by the Federal Board of Revenue (FBR).
Tax:
A fee charged ("levied") by a government on a product, income, or activity. A tax may be defined as a
"pecuniary/financial burden laid upon individuals or property owners to support the government.
History:
The history of taxation in Pakistan can be traced back to the British colonial period. In 1860, the British government
introduced the first income tax law in India, which was later extended to Pakistan after independence in 1947. The current
tax system in Pakistan is based on the Income Tax Ordinance of 2001, which was amended several times since its
enactment.
Classification Of Taxes:
Progressive :A progressive tax is a tax imposed so that the effective tax rate increases as the amount to which the rate is
applied increases.
Regressive :The opposite of a progressive tax is a regressive tax, where the effective tax rate decreases as the amount to
which the rate is applied increases. This effect is commonly produced where means testing is used to withdraw tax
allowances or state benefits.
Proportional : In between is a proportional tax, where the effective tax rate is fixed, while the amount to which the rate is
applied increases.
Lump-sum : A lump-sum tax is a tax that is a fixed amount, no matter the change in circumstance of the taxed entity.
Pakistan Taxation System:
● Most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes.
● Fiscal structure in Pakistan is divided between the Federal and the Provincial Governments.
● This structure was derived from the revenue-sharing provisions of the Government of India Act 1935.
● It has been incorporated into successive constitutional provisions delineating the respective revenue powers of
the Federal and Provincial Governments.
The Current Tax System:
The current tax system in Pakistan is based on the Income Tax Ordinance, 1979. The law is divided into 11 parts and 245
sections. The law covers a wide range of topics, including the definition of income, the determination of taxable income,
the calculation of tax liability, and the collection of taxes. The tax system in Pakistan is a complex and ever-changing
system. The government of Pakistan is constantly making changes to the tax system in an effort to improve revenue
collection and to make the system more equitable.
Federal Taxes:
Direct Taxes : If tax is levied directly on personal or corporate income.
● Salaries
● Interest on securities
● Income from property
● Income from business or professions
● Capital gains
● Income from other source.
Indirect Taxes: If tax is levied on the price of a good or service.
● Custom Taxes
● Sales Taxes
● Federal Excise Duty(removed through SRO in current year)
● Others
Provisional Taxes:
● Professional Tax
● Cotton Fees Property Tax
● Betterment Tax
● Vehicle Tax
● Provincial Excise Duty
● Provincial Excise Duty
● Social Security Contribution
● Stamp Duty
● Capital Gain Tax
● Land Revenue Tax
● Punjab Airport Tax
● Explosive License Fee
● Karachi Dock Labor Board Cess
● Employee Old Age Benefit Contribution Entertainment Tax
 ● Provincial Education Cess
Municipal Taxes:
● Auction of vegetable markets and slaughter houses
● Property tax levied at 3- 4 percent if the value of transaction
● Water Tax
● Octroi consisting of import and export tax
● Licence fee from vendors and shop keepers
● Fee for advertisement boards
● Auction of bus-stops and stands for other vehicles
● Fee for approval of constraction maps
Taxation Policy:
● Simplicity
● Equality
● Equity and fairness
● Convenience of payment
Problems:
Taxation in Pakistan is a complex system of more than 70 unique taxes administered by at least 37 agencies of the
Government of Pakistan.[3] According to the FBR, in 2021, the number of registered tax filers had grown to 7.1 million
out of which only 2.5 million were active tax filers.[4] The FBR has surpassed its collection target by RS 247 billion from
July to March of current fiscal year 21-22, which represents increase by 29.1% over the collection of rupees 3,394 billion
during the same period last year. On the other hand, gross collections also increased by 28.9%.
Tax Collection Agencies in Pakistan:
The government of Pakistan has a number of tax collection agencies, including:[14]

● The Federal Board of Revenue (FBR)

● The Provincial Revenue Authorities (PRAs)
● The Customs Department
● The Excise Department
● The Social Security Corporation.
Tax Collection Process in Pakistan:
The tax collection process in Pakistan can be summarized as follows:
● The government of Pakistan enacts tax laws.
● The tax collection agencies assess taxes on taxpayers.
 ● Taxpayers file tax returns with the tax collection agencies.
● The tax collection agencies collect taxes from taxpayers.
● The tax collection agencies remit taxes to the government of Pakistan.
Tax Evasion in Pakistan:
Tax evasion is the intentional non-payment or underpayment of taxes owed to the government. It can be committed by
individuals, businesses, or other organizations. There are many different ways to commit tax evasion, including:
● Failing to file tax returns
● Filing false tax returns
● Underreporting income
● Overstating deductions
● Claiming fraudulent credits or deductions.
Penalties for tax evasion in Pakistan:
The penalties for tax evasion in Pakistan are severe. They can include:
● Fines
● Imprisonment
● Asset forfeiture
The amount of the fine or the length of the prison sentence will depend on the severity of the offense. For example,
someone who fails to file a tax return may be fined up to Rs. 50,000, while someone who commits fraud may be
sentenced to up to 10 years in prison.
The FBR website has a wealth of information about taxes in Pakistan. You can find information about filing your taxes,
tax deductions and credits, and tax penalties.The Tax Reform Commission of Pakistan is a government body that is
responsible for reforming the tax system in Pakistan. The commission’s website has information about the commission’s
work and its proposals for reform.TaxationPk provides education and training on taxation in Pakistan. The Company’s
website has information about courses, seminars, and other resources.
Good Tax System for Pakistan should be:
● An effective tax system will have good compliance levels.
● Tax system must have in- built mechanisms for taxpayer facilitation.
● Tax system should have a low level of litigation.

Introduction:
Tax revenue plays a crucial role in the financial framework of any nation, serving as a primary source of funding for
government expenditures and public services. The percentage share of tax in a country's Gross Domestic Product (GDP)
provides valuable insights into the fiscal health, economic stability, and overall development of a nation. Understanding
the dynamics of tax revenue and its relationship with GDP is essential for policymakers, economists, and stakeholders
alike.
The purpose of our project is to find the way how Pakistan can increase its tax revenue or percentage share of tax in GDP.
so, in our literature review we’ve analyzed that tax revenue or percentage share of tax in GDP depends upon four
variables and that are our Independent Variables inflation, agriculture share in GDP, Literacy rate, share of urban
population” by using these four variables we have estimate our regression equation and have run the regression to
calculate the result on the basis of that results we've analyzed and make recommendations that how government of
Pakistan can increase its “tax revenue or percentage share of tax in GDP” .
The outcomes of this project are expected to provide valuable insights for policymakers, economists, and stakeholders in
shaping effective tax policies and promoting sustainable economic growth. By analyzing the relationship between tax
revenue and its share in GDP, we aim to contribute to the existing body of knowledge surrounding taxation, public
finance, and economic development.
In conclusion, this project aims to examine tax revenue and its proportional representation in GDP as a means to evaluate
the financial stability of nations and assess the impact of tax policies on economic growth. Through rigorous analysis and
comprehensive research, we strive to provide valuable insights into the dynamics of tax revenue and contribute to the
broader discourse surrounding fiscal policies and economic development.

MATERIALS AND METHOD(S) OR PROCEDURE(S)p:

Determinants of why people didn’t pay taxes:
The extant literature has indicated the existence of various factors that affect tax collection, including agriculture share in
GDP, literacy rate, share of urban population, an inflation.
Agriculture Share In Gdp:
Tax collection can have a positive relationship with the share of agriculture in GDP due to several reasons. Firstly, the
agricultural sector often involves various economic activities, including farming, livestock, and agribusiness, which
generate income and profits that can be subject to taxation. As the share of agriculture in GDP increases, the overall
economic output of the sector expands, providing a larger tax base for potential tax collection. Additionally, a thriving
agricultural sector can contribute to rural development and increased employment, leading to higher incomes and greater
tax revenues through income taxes. Furthermore, as the agricultural sector grows, it may drive related industries such as
food processing, transportation, and retail, leading to increased economic activity and potential tax collection from these
sectors as well. Overall, a higher share of agriculture in GDP can positively impact tax collection by expanding the tax
base and fostering economic growth within the sector and its related industries.
We took that variable from the article determinants of low tax revenue in Pakistan written by Imran Sharif Chaudhary and
farzana Munir.
Pakistan economy is dependent on agriculture almost 42 percent of GDP is made by the agriculture sector and Pakistan
economy mostly rely on the agriculture.
Relationship of the agriculture share in GDP is positive because when share in GDP will increase than the total tax
contribution in GDP will increase.

Literacy Rate:

A higher literacy rate generally correlates with better tax collection due to several factors: a literate population is more
likely to understand tax obligations, comply with reporting requirements, accurately fill out tax forms, and maintain
proper records, reducing errors and tax evasion. In contrast, lower literacy rates may lead to a larger informal economy,
where taxes go unreported, and individuals may struggle to understand or comply with tax regulations, resulting in lower
tax revenues. However, it's important to note that tax collection is influenced by multiple factors beyond literacy, such as
tax policies, enforcement mechanisms, and overall economic development.
We took that variable from the article determinants of tax morale in Pakistan written by Musharraf rasool, cyan antonions
M.koumpias, and Jorge martinez-vezquez.
When literacy rate would increase than the contribution of tax in GDP will increase therefore both variables have positive
relationship.
Share Of Urban Population:

The relationship between tax collection and the share of urban population can be significant and is influenced by various
factors. As the urban population increases, tax collection tends to have the potential to grow as well. Urban areas
generally offer a greater concentration of economic activities, businesses, and higher-income individuals, resulting in a
larger tax base. The urban population often has better access to formal employment and higher levels of income, which
can lead to increased tax revenues through income taxes and consumption taxes. Urban areas also tend to have more
developed infrastructure and public services, which are funded through tax revenues. Additionally, urbanization is often
accompanied by improved tax administration and enforcement capabilities, making it easier to track and collect taxes in
urban settings. However, the relationship is not solely determined by the share of urban population, as other factors such
as tax policies, economic activities, and governance structures also play important roles in determining tax collection
levels.
We took that variable from the article tax collection in Pakistan determinants and impact on economic growth written by
Muhammad faheem Ullah, hammad Badar, kashif Hamid, Muhammad yasir Saeed.
Tax is not collected due un awareness in urban areas when share of urban population will increase than the total revenue
in GDP will increase therefore this variable has positive relationship.

Inflation:

Tax collection is generally negatively related to inflation due to several reasons. Firstly, inflation erodes the purchasing
power of money, which can lead to a decrease in real income for individuals and businesses. As a result, taxpayers may
have less disposable income available for consumption and investment, leading to reduced economic activity and lower
tax revenues. Secondly, inflation can push individuals into higher tax brackets or increase their taxable profits without a
corresponding increase in their real income. This phenomenon, known as "bracket creep," can result in an increased tax
burden for taxpayers without any actual increase in their ability to pay. As a consequence, taxpayers may seek ways to
mitigate the impact of higher taxes, such as reducing spending or engaging in tax planning strategies, which can further
impact tax collection. Overall, the negative relationship between tax collection and inflation stems from the adverse
effects of inflation on individuals' purchasing power and economic activity, which in turn affect their tax liabilities
This variable is included in various research paper which mentioned in above three variables.

Methods:
Data we consider is from World Bank of past ten year’s record of GDP elements. Based on prior studies concerning
determinants of why people dint pay taxes. There are a lot of factors mentioned in research papers and data of these are
available at World Bank web. The final sample includes 4 variables spanning 2010-2022. The data for all variables are
obtained from the World Bank web issued by State Bank of Pakistan.

Model:
We opt for a panel data model to estimate the results. We used OLS ordinary last square on CONTRIBUTIO OF TAX IN
GDP. However, owing to small firm-year observations, we find the GMM model inapplicable, and thus resort to the panel
data model. The panel data has two models: fixed effect model and random effect model. We apply the Housman
specification test to select the appropriate model for our results. Given the variables in Table 1, a general econometric
model for the purpose of estimation can be specified as follows:

CTGDPit = β0 + β1ASGDPit + β2LRit + β3SOUPit + β4Iit+ εit

In Eq. 1, β0 is the intercept, β1 to β4 are the slope parameters, and εit is the general error term; i catches the values of
elements of GDP 1 to 10, while t catches the values from 2010 to 2020. In Eq. 1, is CTGDPit (contribution of tax in
GDP); β1ASGDPit (agriculture share in GDP); β2LRit (literacy rate); β3SOUPit (share of urban population in GDP).
β4Iit (inflation)
Table 1.1 Variables definitions Variables Symbol Measurement :

Contribution of tax in GDP percentage contribution of tax in GDP

Agriculture share in GDP percentage of share in GDP +

Literacy rate percentage of literacy rate +

Share of urban population in GDP percentage of share of urban population +

Inflation In percentage -

RESULTS OR FINDINGS AND EQUATIONS

Table 1.2
REGRESSION RESULT
Dependent Variable: CTGDP
Method: Least Squares
Date: 06/06/23 Time: 17:22
Sample: 2011 2022
Included observations: 12
Variable Coefficient Std. Error t-Statistic Prob.
C -0.18242 0.093119 -1.95901 0.091
SOUP 0.330916 0.160425 2.062743 0.078
AGRICULTURE_SHARE_IN_GDP 0.191985 0.112485 1.706754 0.1316
LITRACEY_RATE 0.133211 0.1125 1.184099 0.275
INFLATION -0.03473 0.017265 -2.01182 0.0841
R-squared 0.5903 Mean dependent var 0.054158
Adjusted R-squared 0.356186 S.D. dependent var 0.003032
S.E. of regression 0.002433 Akaike info criterion -8.90514
Sum squared resid 4.14E-05 Schwarz criterion -8.7031
Log likelihood 58.43083 Hannan-Quinn criter. -8.97994
F-statistic 2.521421 Durbin-Watson stat 2.642174
Prob(F-statistic) 0.134961

CTGDP=-0.1824+.1919ASGDP+.1331LR+.330SOUP-.0347I+ εi
INTERPRETATIONS:
● R-SQUARE:
In regression result r-square tells us that the variation of dependent variable due to change in
independent variable or in simple words it tells us that our selected independent variables
explained how many percent of variations in dependent variable. So, in our regression equation
result our r-square is 59 percent so it means that 59 percent of variation in "contribution of tax in GDP" is
due to our selected four i.vs and that are "inflation, agriculture share in GDP, Literacy rate, share of urban
population.
So the simple word explanation of one-by-one is: if there is one percent increase in inflation the
contribution of tax in GDP decreases by 0.0347. if there is one percent increase in agriculture share in
GDP the contribution of tax in GDP increase by 0.1919.if there is one percent increase in Literacy rate .
The contribution of tax in GDP increased by 0.1332.if there is one percent increase in share of urban
population the contribution of tax in GDP increased by 0.3309. intercept : in the regression equation
intercept is a constant which is used in the equation to show the value of d.v when all the i.vs used in eq.
has a value equal to zero. Likewise , in our regression equation the value of intercept is (0.1824) so it
means that when the values of our ivs "inflation, agriculture share in GDP, Literacy rate, share of urban
population" will equal to zero then the "contribution of tax in GDP" will be (0.1824).

o B1 : As it has justified theoretically that relationship between the "contribution of tax in GDP" and
"agriculture share in GDP" have positive relationship between them it means that when there is one
percent increase is "agriculture share in GDP" contribution of tax in GDP increase by 0.1919. so in our
results our B1 has also shown positive sign so it means theory is supporting our variable and we also
know that theory has veto power.

o B2 ;As it has justified theoretically that relationship between the "contribution of tax in GDP" and
"Literacy rate" have positive relationship between them it means that when there is one percent increase
the "Literacy rate" contribution of tax in GDP increases by 0.332. so in our results our B2 has also shown
positive sign so it means theory is supporting our variable and we also know that theory has veto power.

o B3:As it has justified theoretically that relationship between the "contribution of tax in GDP" and "share
of urban population" have positive relationship between them it means that when there is one percent
increase in "share of urban population" contribution of tax in GDP increase by 0.330. so in our results our
B3 has also shown positive sign so it means theory is supporting our variable and we also know that
theory has veto power.

o B4; As it has been justified theoretically that the relationship between the "contribution of tax in GDP"
and "inflation" has a negative relationship between them it means that when there is one percent increase
the "inflation" contribution of tax in GDP increases by (0.0347). so in our results our B4 has also shown
negative sign so it means theory is supporting our variable and we also know that theory has veto power.
MULTICOLLINERITY TEST:

CO-RELATION TEST:
Table 1.3

Covariance Analysis: Ordinary

Date: 06/06/23 Time: 17:57
Sample: 2011 2022
Included observations: 12
Covariance
AGRICULTURE_SHARE_IN LITRACEY_R
Correlation _GDP INFLATION ATE SOUP
AGRICULTURE_SHARE_IN_
GDP 0.000137
1
INFLATION -8.06E-05 0.002006
-0.15399 1

LITRACEY_RATE -0.00011 0.000109 0.000133

-0.81515 0.211071 1
SOUP -6.56E-05 0.000127 6.49E-05 5.69E-05
-0.74352 0.374716 0.745097 1

MUTICOLLINEARY BETWEEN SOUP AND INFLATION :

Table 1.4
Dependent Variable: SOUP
Method: Least Squares
Date: 06/06/23 Time: 18:02
Sample: 2011 2022
Included observations: 12
Variable Coefficient Std. Error t-Statistic Prob.
C 0.356204 0.004732 75.27348 0
INFLATION 0.063122 0.049389 1.278077 0.2301
R-squared 0.140412 Mean dependent var 0.36155
Adjusted R-squared 0.054453 S.D. dependent var 0.007881
S.E. of regression 0.007663 Akaike info criterion -6.75377
Sum squared resid 0.000587 Schwarz criterion -6.67295
Log likelihood 42.52259 Hannan-Quinn criter. -6.78369
F-statistic 1.633482 Durbin-Watson stat 0.157554
Prob(F-statistic) 0.230091
 CALCULATEING VIF:

R^2 = 1 /1-R^2
R^2 = .1618
= 1/1-.1618
= 1.32
IN ABOVE PRPOFMED MULTICOLLINERITY BETWEEN UNEMPLOYMENT AND LITRACY RATE
MLTICOLLINEARTY DOSNOT EXICST.

MUTICOLLINEARY BETWEEN SOUP AND LITERACY RATE:

Table:1.5
Dependent Variable: SOUP
Method: Least Squares
Date: 06/06/23 Time: 18:04
Sample: 2011 2022
Included observations: 12

Variable Coefficient Std. Error t-Statistic Prob.

C 0.084031 0.078572 1.069487 0.31

LITRACEY_RATE 0.486875 0.137817 3.532776 0.0054

R-squared 0.55517 Mean dependent var 0.36155

Adjusted R-squared 0.510687 S.D. dependent var 0.007881
S.E. of regression 0.005513 Akaike info criterion -7.41253
Sum squared resid 0.000304 Schwarz criterion -7.33171
Log likelihood 46.47516 Hannan-Quinn criter. -7.44245
F-statistic 12.48051 Durbin-Watson stat 1.610496
Prob(F-statistic) 0.005422

CALCULATEING VIF:
R^2 = 1 /1-R^2
R^2 = .20
= 1/1- .20
= 1.26
IN ABOVE PRPOFMED MULTICOLLINERITY BETWEEN UNEMPLOYMENT AND INFLATION
MLTICOLLINEARTY DOSNOT EXICST.

MUTICOLLINEARY BETWEEN SOUP AND AGRICULTURE SHARE IN GDP:

Table:1.6
Dependent Variable: SOUP
Method: Least Squares
 Date: 06/06/23 Time: 18:05
Sample: 2011 2022
Included observations: 12

Variable Coefficient Std. Error t-Statistic Prob.

C 0.47144 0.031294 15.06465 0

AGRICULTURE_SHARE_IN_GDP -0.48004 0.136529 -3.51605 0.0056

R-squared 0.552825 Mean dependent var 0.36155

Adjusted R-squared 0.508108 S.D. dependent var 0.007881
S.E. of regression 0.005527 Akaike info criterion -7.40727
Sum squared resid 0.000305 Schwarz criterion -7.32645
Log likelihood 46.44361 Hannan-Quinn criter. -7.43719
F-statistic 12.36262 Durbin-Watson stat 0.98219
Prob(F-statistic) 0.005575

CALCULATEING VIF:
R^2 = 1 /1-R^2
R^2 = 0.55
= 1/1- 0.55
= 2.22
IN ABOVE PRPOFMED MULTICOLLINERITY BETWEEN SHARE OF URBAN POPULATION AND INFLATION
MLTICOLLINEARTY DOSNOT EXICST.

MUTICOLLINEARY BETWEEN INFLATION AND AGRICULTURE SHARE IN GDP:

Table:1.7
Dependent Variable: INFLATION
Method: Least Squares
Date: 06/06/23 Time: 18:05
Sample: 2011 2022
Included observations: 12

Variable Coefficient Std. Error t-Statistic Prob.

C 0.219808 0.274496 0.800771 0.4419

AGRICULTURE_SHARE_IN_GDP -0.59021 1.197548 -0.49285 0.6328

R-squared 0.023714 Mean dependent var 0.0847

Adjusted R-squared -0.07392 S.D. dependent var 0.046783
S.E. of regression 0.048481 Akaike info criterion -3.06428
Sum squared resid 0.023504 Schwarz criterion -2.98346
 Log likelihood 20.38568 Hannan-Quinn criter. -3.0942
F-statistic 0.242898 Durbin-Watson stat 0.776891
Prob(F-statistic) 0.632763

CALCULATEING VIF:
R^2 = 1 /1-R^2
R^2 = 0.55
= 1/1- 0.55
= 2.22
IN ABOVE PRPOFMED MULTICOLLINERITY BETWEEN SHARE OF URBAN POPULATION AND INFLATION
MLTICOLLINEARTY DOSNOT EXICST.

MUTICOLLINEARY BETWEEN LITERACY RATE AND AGRICULTURE SHARE IN GDP:

Table:1.8
Dependent Variable:
LITRACEY_RATE
Method: Least Squares
Date: 06/06/23 Time: 18:06
Sample: 2011 2022
Included observations: 12

Variable Coefficient Std. Error t-Statistic Prob.

C 0.754372 0.041485 18.18408 0

AGRICULTURE_SHARE_IN_GDP -0.80541 0.180989 -4.45006 0.0012

R-squared 0.664463 Mean dependent var 0.57

Adjusted R-squared 0.63091 S.D. dependent var 0.01206
S.E. of regression 0.007327 Akaike info criterion -6.84347
Sum squared resid 0.000537 Schwarz criterion -6.76265
Log likelihood 43.06083 Hannan-Quinn criter. -6.87339
F-statistic 19.803 Durbin-Watson stat 2.352683
Prob(F-statistic) 0.001235

CALCULATEING VIF:
R^2 = 1 /1-R^2
R^2 = 0.55
= 1/1- 0.55
= 2.22
IN ABOVE PRPOFMED MULTICOLLINERITY BETWEEN SHARE OF URBAN POPULATION AND INFLATION
MLTICOLLINEARTY DOSNOT EXICST.

RAMSEY RESET TST:

Table:1. 9

Ramsey RESET Test

Equation: UNTITLED
Specification: CTGDP C INFLATION
LITRACEY_RATE
AGRICULTURE_SHARE_IN_GDP
SOUP
Omitted Variables: Squares of fitted values
Value df Probability
t-statistic 0.348157 6 0.0396
F-statistic 0.121213 (1, 6) 0.0396
Likelihood ratio 0.24001 1 0.0242
F-test summary:
Mean
Sum of Sq. df Squares
Test SSR 8.20E-07 1 8.20E-07
Restricted SSR 4.14E-05 7 5.92E-06
Unrestricted SSR 4.06E-05 6 6.77E-06
LR test summary:
Value
Restricted LogL 58.43083
Unrestricted LogL 58.55084
Unrestricted Test Equation:
Dependent Variable: CTGDP
Method: Least Squares
Date: 06/06/23 Time: 18:10
Sample: 2011 2022
Included observations: 12
Variable Coefficient Std. Error t-Statistic Prob.

C 0.75552 2.695859 0.280252 0.7887

INFLATION 0.120231 0.445485 0.269888 0.7963
LITRACEY_RATE -0.482 1.771131 -0.27214 0.7946
AGRICULTURE_SHARE_IN_GDP -0.66985 2.478331 -0.27028 0.796
SOUP -1.12648 4.189546 -0.26888 0.797
FITTED^2 42.1395 121.0359 0.348157 0.7396
R-squared 0.598413 Mean dependent var 0.054158
Adjusted R-squared 0.263758 S.D. dependent var 0.003032
S.E. of regression 0.002602 Akaike info criterion -8.75847
Sum squared resid 4.06E-05 Schwarz criterion -8.51602
Log likelihood 58.55084 Hannan-Quinn criter. -8.84824
 F-statistic 1.788146 Durbin-Watson stat 2.589443
Prob(F-statistic) 0.24942

PARK TEST:
Table:1.10

Dependent Variable: LOG(ESQ)

Method: Least Squares
Date: 06/06/23 Time: 19:02
Sample: 2011 2022
Included observations: 12
Variable Coefficient Std. Error t-Statistic Prob.
C -93.6088 38.89851 -2.40649 0.047
LOG(INFLATION) -1.37015 0.607258 -2.25629 0.0587
LOG(AGRICULTURE_SHARE_IN_GD
P) -22.0506 11.45894 -1.92431 0.0957
LOG(SOUP) -2.34769 25.27808 -0.09288 0.9286
LOG(LITRACEY_RATE) -73.951 29.23199 -2.5298 0.0392
R-squared 0.673306 Mean dependent var -13.5174
Adjusted R-squared 0.486624 S.D. dependent var 1.556672
S.E. of regression 1.11536 Akaike info criterion 3.350568
Sum squared resid 8.708191 Schwarz criterion 3.552612
Log likelihood -15.1034 Hannan-Quinn criter. 3.275764
F-statistic 3.606699 Durbin-Watson stat 2.474565
Prob(F-statistic) 0.066894

Argumented Ducky Filler And Phillpy Perron Test:

Table:1.11 , Argumented dickey fuller test of dependent variable GDP

GDP AT LEVEL
Null Hypothesis: CTGDP has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC,
maxlag=2)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -3.29941 0.0412
Test critical values: 1% level -4.20006
5% level -3.17535
10% level -2.72899
*MacKinnon (1996) one-sided p-values.
Warning: Probabilities and critical values
calculated for 20 observations and may not be
accurate for a sample size of 11

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(CTGDP)
Method: Least Squares
Date: 06/06/23 Time: 00:18
 Sample (adjusted): 2012 2022
Included observations: 11 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
CTGDP(-1) -0.97469 0.295415 -3.29941 0.0092
C 0.053215 0.015982 3.329621 0.0088
R-squared 0.547422 Mean dependent var 0.000564
Adjusted R-squared 0.497136 S.D. dependent var 0.004135
S.E. of regression 0.002932 Akaike info criterion -8.66299
Sum squared resid 7.74E-05 Schwarz criterion -8.59065
Log likelihood 49.64646 Hannan-Quinn criter. -8.7086
F-statistic 10.88609 Durbin-Watson stat 2.322598
Prob(F-statistic) 0.009239

Table:1.12, Phillips perron test of independent variable literacy rate.

Litracy @1st difference

Null Hypothesis: D(LITRACEY_RATE) has a unit
root
Exogenous: Constant
Bandwidth: 8 (Newey-West automatic) using Bartlett
kernel
Adj. t-
Stat Prob.*
Phillips-Perron test statistic -12.7273 0
Test critical values: 1% level -4.29707
5% level -3.2127
10% level -2.74768
*MacKinnon (1996) one-sided p-values.
Warning: Probabilities and critical values calculated
for 20 observations
and may not be accurate for a sample size of 10
Residual variance (no correction) 0.0001
1.93E-
HAC corrected variance (Bartlett kernel) 05
Phillips-Perron Test Equation
Dependent Variable: D(LITRACEY_RATE,2)
Method: Least Squares
Date: 06/06/23 Time: 00:38
Sample (adjusted): 2013 2022
Included observations: 10 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
D(LITRACEY_RATE(-1)) -1.64286 0.252538 -6.50538 0.0002
C 0.004286 0.003571 1.2 0.2645
R-squared 0.841017 Mean dependent var 0.001
0.0264
Adjusted R-squared 0.821145 S.D. dependent var 37
-
5.9724
S.E. of regression 0.01118 Akaike info criterion 6
 -
5.9119
Sum squared resid 0.001 Schwarz criterion 5
-
6.0388
Log likelihood 31.86232 Hannan-Quinn criter. 5
2.2178
F-statistic 42.32 Durbin-Watson stat 57
Prob(F-statistic) 0.000187

Table:1.13, Argumented Dickey fuller test of independent variable Agricultural Share in

GDP:

agri @ 1st diff

Null Hypothesis:
D(AGRICULTURE_SHARE_IN_GDP) has a unit
root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC,
maxlag=2)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -4.47968 0.0077
Test critical values: 1% level -4.29707
5% level -3.2127
10% level -2.74768
*MacKinnon (1996) one-sided p-values.
Warning: Probabilities and critical values
calculated for 20 observations
and may not be accurate for a sample size of
10
Augmented Dickey-Fuller Test Equation
Dependent Variable:
D(AGRICULTURE_SHARE_IN_GDP,2)
Method: Least Squares
Date: 06/06/23 Time: 00:46
Sample (adjusted): 2013 2022
Included observations: 10 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
D(AGRICULTURE_SHARE_IN_GDP(-1)) -1.25909 0.281066 -4.47968 0.0021
C -0.00276 0.002825 -0.97807 0.3567
R-squared 0.714973 Mean dependent var -0.001
Adjusted R-squared 0.679345 S.D. dependent var 0.01562
S.E. of regression 0.008845 Akaike info criterion -6.441
-
Sum squared resid 0.000626 Schwarz criterion 6.38048
-
Log likelihood 34.20499 Hannan-Quinn criter. 6.50739
1.31198
F-statistic 20.06756 Durbin-Watson stat 5
Table:1.14, Argumented Dickey fuller test of independent variable Inflation:

inflation@ 1st diff

Null Hypothesis: D(INFLATION,2) has a unit root
Exogenous: Constant
Lag Length: 1 (Automatic - based on SIC, maxlag=2)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -4.78075 0.0079
Test critical values: 1% level -4.58265
5% level -3.32097
10% level -2.80138
*MacKinnon (1996) one-sided p-values.
Warning: Probabilities and critical values calculated
for 20 observations
and may not be accurate for a sample size of 8
Augmented Dickey-Fuller Test Equation
Dependent Variable: D(INFLATION,3)
Method: Least Squares
Date: 06/06/23 Time: 00:36
Sample (adjusted): 2015 2022
Included observations: 8 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
D(INFLATION(-1),2) -3.43162 0.7178 -4.78075 0.005
D(INFLATION(-1),3) 1.208533 0.405284 2.981941 0.0307
C 0.018378 0.012764 1.439863 0.2094
R-squared 0.857793 Mean dependent var 0.0114
Adjusted R-squared 0.800911 S.D. dependent var 0.08041
-
S.E. of regression 0.035878 Akaike info criterion 3.53737
-
Sum squared resid 0.006436 Schwarz criterion 3.50758
-
Log likelihood 17.14946 Hannan-Quinn criter. 3.73829
1.68494
F-statistic 15.08004 Durbin-Watson stat 5
Prob(F-statistic) 0.007626

TablE:1.15, Philly's Perron Test Of Independent Variable Soup:

Soup at 1st difference

Null Hypothesis: D(SOUP) has a unit root
Exogenous: Constant
Bandwidth: 9 (Newey-West automatic) using
Bartlett kernel
Adj. t-
Stat Prob.*
Phillips-Perron test statistic -4.85375 0.0046
 Test critical values: 1% level -4.29707
5% level -3.2127
10% level -2.74768
*MacKinnon (1996) one-sided p-values.
Warning: Probabilities and critical values
calculated for 20 observations
and may not be accurate for a sample size of
10
1.38E-
Residual variance (no correction) 05
2.29E-
HAC corrected variance (Bartlett kernel) 06
Phillips-Perron Test Equation
Dependent Variable: D(SOUP,2)
Method: Least Squares
Date: 06/06/23 Time: 00:40
Sample (adjusted): 2013 2022
Included observations: 10 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.

D(SOUP(-1)) -1.15418 0.351236 -3.28604 0.0111

C 0.000246 0.001319 0.186712 0.8565
R-squared 0.574423 Mean dependent var -0.0001
0.00600
Adjusted R-squared 0.521226 S.D. dependent var 8
S.E. of regression 0.004157 Akaike info criterion -7.95101
Sum squared resid 0.000138 Schwarz criterion -7.8905
Log likelihood 41.75506 Hannan-Quinn criter. -8.0174
F-statistic 10.79803 Durbin-Watson stat 2.08007
Prob(F-statistic) 0.011087

CONCLUSION

We have explored the determinants of the Non-Paying Tax Behavior using a panel data of Pakistan during the
period 2010-2022. Our main objective was to get some new perspective on the determinants of the Non-Paying Tax
Behavior in emerging tax contrition of Pakistan. Our results are similar to those reported in earlier literature and provide
more insight about the determinants of the Non-Paying Tax Behavior. In this study, we have found out that both pecking
order and trade-off theories play a significant role in explaining the determinants of the Non-Paying Tax Behavior. Our
result shows that the factors determining the Non-Paying Tax Behavior in the both emerging countries as well as in
developed countries are mostly similar. The finding of this study shows that agriculture share in GDP have positive effect.
The finding of this study shows that "inflation" has a negative relationship .The finding of this study shows that literacy
rate and share of urban population has a significant positive impact the Non-Paying Tax Behavior. We have only
investigated the people of Pakistan contribution to tax. Many other internal and external firm characteristics that may
influence tax collection as mentioned by previous authors, for example, financial crisis, agency cost, financial constraint,
business condition, corporate governance, investor rights, asymmetric information etc. should be incorporated into future
research work.

REFERENCES