Leading Issues in the Economy of Pakistan: Agenda for Reforms Indirect Tax Reforms The share of indirect taxes, inclusive of income withholding taxes, is very high in Pakistan at 82 percent and it has been increasing in recent years. Therefore, the focus should be more on broad-basing and reduction in tax rates rather than on enhancement of tax rates. The implementation of direct tax reforms described above should be followed by a reduction in the general sales tax rate to 15 percent. Recommendations The following reforms are proposed in indirect taxes. i) Move towards a nationally integrated sales tax on goods and services with VAT fea­tures. This will lead to a closer approximation of the tax to a comprehensive value added tax. Both taxpayers of sales tax on goods and services respectively will file the same tax return. There will be one tax rate throughout the country and the same for goods and services. This fundamental reform will both widen the coverage and sub­stantially reduce evasion. ii) The time has come for the imposition of an import duty and sales tax on selected ser­vices. The‘reverse charge’ principle can be applied to the collection of the tax. iii) Reduction of tax evasion can be achieved by a levy of the sales tax on more goods on the manufacturer based on the notified retail price. Most luxury consumer goods and consumer durables should be taxed on the retail price and paid for by the manufac­turer. iv) The excise duty is leviable on items which can be considered as harmful. As such, it should be extended on all and services which pollute the environment or lead to the depletion of natural resources like wood products, brickkilns, chemicals, etc. Provincial Tax Reforms As highlighted earlier, the total revenue from provincial taxes is only 0.9 percent of the GDP, despite the presence of large tax bases of the agricultural income tax; sales tax on services and the urban immoveable property tax. Recommendations The proposed reforms in agricultural income tax which currently yields only Rs 3 billion in the four Provinces combined are as follows: 164