Pakistan's 'lost curve'.

Many a moon ago, a high-profile ministerial meeting discussed the country's taxation system. A senior official intervened, saying, 'We have reached the Laffer Curve, no need for more taxation.' The minister was understandably impressed by the term and nodded in affirmation. The meeting told me it was apparent that none of our country's great wizards and finance gurus had any idea about the Laffer Theory. The term hence transformed into a political curve.

So, what is this curve all about? It is a Western capitalist phenomenon where taxation is a major revenue source. Derived from Arthur Laffer, an American economist, the Laffer Curve is a theoretical association between tax rates and the resulting amounts of tax revenues collected by the government. It assumes zero tax revenue generated at the extrema of tax rates. It simply means no one would pay the tax if they were too high.

The Laffer Curve is normally illustrated as a graph that initiates from a 0 percent tax rate with no tax revenue. It rises to a maximum level of tax revenue at a midway tax rate and then drops to zero tax revenue at a 100 percent tax rate. The curve is directly associated with the country's income and its constituent's capacity to pay taxes. As one would imagine, it varies from country to country.

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