This paper is divided into six parts. Following thisintroduction a reivew of the fiscal policies pursued by the Governmentof Pakistan is presented in the second section. The third sectioncontains an assessment of the performance of different taxes while thefourth presents the reasons for low revenue performance. The key issuesin tax policy reform are discussed in the fIfth section. The finalsection presents the recommendations for future policy directions. Thetaxation structure of Pakistan is both Federal and Provincial in nature.This structure was derived from the revenue-sharing provisions of theGovernment of India Act, 1935 and has been incorporated into successiveconstitutions delineating the respective revenue powers of the Federaland Provincial Governments. Under the present constitution, the FederalGovernment has the constitutional right to levy a wide range of directand indirect taxes [Government of Pakistan (1973)]. Federal direct taxescomprise of personal and corporate income tax (excluding tax onagriculture income), and capital taxes (excluding tax on immovableproperty). Since the abolition of estate duties and gift taxes, thelatter include wealth tax and Capital Value Tax. One time Capital AssetsTax on companies was levied in 1991. Income of small businesses issubject to fixed tax. Minimum tax at the rate of 0.5 percent of turnoverapplies to Corporate and Registered Firm taxpayers. Presumptive taxregime applies to dividends and interest, prizes on prize bonds,lotteries and raffles, payments for contract execution and supply ofgoods, and value of imported and exported goods [Government of Pakistan(1991)].