Mazhar Waseem

Staggered VAT Introduction in Pakistan

One of Mazhar Waseem’s recent research papers leverages the staggered introduction of VAT in Pakistan to investigate if the tax facilitates compliance as is claimed in the theoretical literature. The staggered introduction creates a nice quasi-experiment to assess this question. Mr Waseem focuses on firms that are already in the tax net and studies how their outcomes – reported sales and inputs – change as their trading partners enter the tax regime and their exposure to VAT deepens. He finds that the tax indeed facilitates compliance. But the mechanism through which the effect operates is not the one usually discussed in the literature, i.e. information trails. Instead, the self-enforcement effect, to a large degree, captures tax withholding at the upstream stage.

The main theme of Mr Waseem’s research is why modern broad-based taxes – income tax and VAT – that raise the bulk of taxes in rich countries perform poorly in developing countries. He has exploited quasi-experimental variation and rich administrative data from Pakistan to investigate the role of tax policy – tax rates and tax bases – and information environment – self-reporting vs. third-party reporting, informality – in shaping the compliance behaviour of agents in low tax capacity setting. One recurring conclusion that emerges from his research is that many standard economic results derived in developed country settings do not hold in settings where informality is pervasive, evasion widespread and enforcement capacity week. A corollary of the result is that the existing tax policy advice to developing countries is not suited to their tax environment and needs to be tailored to reflect compliance environment there.

Before starting his research career, Mazhar Waseem served for ten years in the tax administration of Pakistan, where he supervised the collection and enforcement of Customs, Excises and VAT and contributed to the development of Information Technology infrastructure of the department. Mr Waseem is a Lecturer in Economics at the University of Manchester. He holds an MSc and a PhD in economics from the London School of Economics.