The aim of this research is to study the incentivized tax policy and its impact on investments in Pakistan. Study period is spanned over 25 years ranging from 1990 to 2014. For data collection and analysis, the quantitative method is predominantly used. Specifically, inferential statistics are used and for time series data analysis multiple regressions and ARDL approach techniques are used. The researcher adopted a model comprising variables of incentivized tax policy like corporate tax rates and custom tariffs to analyze its impact on (FDI) and domestic investment in Pakistan in aggregate. Findings of the study reveal that corporate tax rate is significantly negatively associated with domestic investment. Furthermore, tax rates for companies have important but negative relationship with FDI. In addition the study indicates that tariff rate has no statistically significant relationship with foreign direct investment as well as with domestic investment. Findings lead to the way forward for economic policy makers in Pakistan. Tax incentives need to be viewed as a component of larger picture of Pakistan’s vision and policy for the economy which aims at creating a fair and competitive economic environment. There is need to bear the short term results arising out of tax incentives in shape of complicated systems, inequities and untapped revenue. In market segments, tax policy needs to be implemented with a view to eradicate inefficiencies. Incentives should be used to promote investments in business with focus on research and development in industry. Decrease in corporate tax rate results in significant increase domestic investment and FDI, so government should take steps to rationalize the tax rates, so that economic activities may be accelerated and investment may grow for overall economic growth. Moreover, unlike many other countries, non-tax factors like political instability, security situation, less ease and cost ofdoing business, lack of business competitiveness, difficult and complicated regulatory procedures and weak physical infrastructure immensely and negatively affect growth of domestic and foreign investment in Pakistan. The government policies should also focus on addressing and improving the situation regarding these non-tax factors, along with providing tax incentives to promote investment and boost economic development in the country.
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