Abstract
The objective of this research paper is to study the incentivized tax policy and its
impact on investments in Pakistan. The study mainly relies on quantitative
method of inquiry and is clearly aimed at providing insight about the impact of
change in Tax and Tariff rates on domestic investment while examining and
evaluating the impact of Tax and Tariff rates on FDI. The independent variables
used for this study include Corporate Tax rates and Tariff rates while dependent
variables are domestic investment and foreign direct investment (FDI). The
research has been conducted using the data collected over a period of 25 years
(1990 to 2014). Other sources/methods include secondary data analysis,
inferential statistics and series data analysis involving multiple regressions for
analyzing the impact of corporate tax, customs tariff rates and other tax
incentives on FDI and domestic investment. The study uses both ARDL and
regression analysis approaches to examine the relationship between corporate
tax rate, tariff rate and domestic investment. Findings of the study reveal that
corporate tax rate is significantly negatively associated with domestic
investment and FDI. The study, however, also points to the fact that import tariff
rates have no statistically significant relationship with foreign direct investment
or domestic investment. It has been noticed that decrease in corporate tax rate
results in significant increase in domestic investment and FDI and therefore it
has been suggested that the government should take steps to rationalize the tax
and tariff rates to attract investment. It has been further suggested that
investment friendly environment may be provided to the investors through
competitiveness, transparency, consistency and rationalization of tax policies.
The study underlines the fact that tax policy should not only be focused on
revenue collection but it should take a holistic view and planned and
implemented in a manner that helps to promote investment leading to
improvement of overall economic indicators of the country
Khalid Mahmood Lodhi. (2017) Tax Incentives and Impact on Investment In Pakistan, Abasyn Journal of Social Sciences, Volume-10, Issue-1.
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