Choudha y, Mazha Hussain
A icle
The impac o he EU’s gene alized sys em o p e e ences
plus s a us on companies and iscal policy o Pakis an: A
case o he ex ile indus y
Financial In e ne Qua e ly
P o ided in Coope a ion wi h:
Uni e si y o In o ma ion Technology and Managemen , Rzeszów
Sugges ed Ci a ion: Choudha y, Mazha Hussain (2024) : The impac o he EU’s gene alized sys em
o p e e ences plus s a us on companies and iscal policy o Pakis an: A case o he ex ile indus y,
Financial In e ne Qua e ly, ISSN 2719-3454, Sciendo, Wa saw, Vol. 20, Iss. 4, pp. 72-84,
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Abs ac This pape 's main goal is o e alua e he be o e and a e e ec s o EU’s GSP plus on Pakis ani
company’s ax paymen o ex ile sec o and sugges ing he Fiscal policy. In ac , he s udy ad-
d ess wha e ec does he Gene alized Sys em o P e e ences (GSP) plus S a us o he EU ha e
on he co po a e axa ion o Pakis an's ex ile indus y and on ax policy? Fo ha pu pose, in
his s udy he eg ession analysis is used. The da a o lis ed local and in e na ional companies a e
ga he ed om Pakis an S ock Exchange. The esul s depic ha expo ing companies able o in-
c ease hei p o i s and pay mo e co po a e ax led o impa in he sus ainable economic
g ow h o Pakis an. This s udy will help ou he iscal policy make s in he de elopmen o ax
policy o he po en ial expo s sec o o EU. Fu he mo e, assis he inancial manage s o c e-
a e a co po a e s a egy o he mul ina ional i ms.
JEL classi ica ion: F14, F3, H2
Keywo ds: Pakis an, Eu opean Union, GSP plus, Co po a e Tax, Tax Re enue
Recei ed: 02.09.2024 Accep ed: 21.10.2024
Ci e his:
Choudha y, M.H. (2024). The impac o he EU’s Gene alized Sys em o P e e ences (GSP) plus s a us on companies and iscal policy o Pakis an:
A case o he ex ile indus y. Financial In e ne Qua e ly 20(4), pp. 72-84.
© 2024 Mazha Hussain Choudha y, published by Sciendo. This wo k is licensed unde he C ea i e Commons A ibu ion-NonComme cial-
NoDe i a i es 3.0 License.
1 Uni e si y o Ha’il, Saudi A abia, e-mail: d mazha [email protected], ORCID: h ps://o cid.o g/0000-0003-2355-7402.
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
Sai a e al., 2021; Julia, 2019; Yakubu e al., 2018;
Kiend ebeogo & Minea, 2017; Ma ilyne e al., 2017;
Valen ina e al., 2016) because o he e olu ion o
heo ies associa ed wi h in e na ional inancial man-
agemen . Fu he mo e, a Mul ina ional Company
(MNC) educes i s sys ema ic isk by opening subsidia -
ies in a ious geog aphical a eas. Those companies
which a e in ol ed in in e na ional ade can inc ease
hei p o i s and pay mo e co po a e ax. Consequen ly,
a coun y can gene a e mo e ax e enue. Thus, i is
pe inen o men ion ha he inancial economis can
sc u inize he impac o he EU’s GSP plus on compa-
nies and iscal policy.
Pakis an is an ag icul u al economy, whe e a huge
amoun o land is used o p oduc ion o co on and
o he c ops. This po en ial is why he Pakis ani ex ile
indus y was es ablished and lou ishes. Hence, Paki-
s an is one o he signi ican coun ies which expo low
cos and quali y p oduc s. The GSP plus ag eemen
be ween he Eu opean Union and Pakis an was e ec-
i e on 1s Janua y 2014 . This ag eemen ga e p e e -
en ial access o impo an expo goods o he EU ma -
ke ha lead o p o iding oppo uni y o he g ow h o
expo sec o s as well as indus ial policy ini ia i es o
he long e m. Consequen ly, Pakis an's ex ile expo s
su ged o USD 14.22 billion in he iscal yea 2013-
2014 as compa ed o he iscal yea 2012- 2013, which
was USD 13.69 billion (Economic Su ey o Pakis an).
The o al ade o Pakis an wi h he EU accoun s
o 46.8%. In 2019, Pakis an’s expo s o he EU was
USD 9.7 billion. Mo eo e , Pakis an’s expo s o he EU
g ew a a CAGR o 4.3% om 2014 o 2019, a e
ge ing he s a us o GSP plus. In con as , i me ely
g ew a 3.6% om 2008 o 2013, be o e he awa d o
GSP plus o Pakis an in 2014. The EU’s o al impo s
om he wo ld amoun ed o USD 6.2 illion in 2019.
Howe e , o he same ime pe iod Pakis an’s expo s
sha e o he EU ma ke was 0.16%. Pakis ani po en ial
sec o s we e appa el & clo hing (USD 4.2 billion), home
ex iles (USD 2.3 billion), ice (USD 426.5 million) and
lea he a icles (USD 356.9 million). Cu en ly, Pakis an
is u ilizing 96.5% o he GSP Plus scheme and unde he
same scheme Pakis ani expo s con ibu e 87.3% o
o al expo s o he EU. (Pakis an Business Council-
Repo , 2020).
The abo e highligh ed ac s and igu es mo i a ed
he au ho o u he in es iga e he impac o he EU’s
GSP plus on he co po a e ax o mos o Pakis an’s
po en ial ex ile sec o . Mo eo e , he p e ious s udies
ha e discussed he ax and EU ade libe aliza ion like
(Philipp, 2021; Ch is ian e al., 2021; Michela, 2014;
Osman, 2011; Ahmad & Kalim, 2014; Halle be g
& Basinge , 1998; Swank e al., 2002; Lewis e al., 2001;
In e na ional businesses ha e e ol ed a ound he
wo ld and esea che s a e keen o unde s and he ma-
jo ac o s which impac he p o i abili y o a company.
Mo eo e , he en i onmen o in e na ional ading,
pa icula ly he in e na ional ade policy composi ion,
is a signi ican componen ha migh impac p o i s.
One signi ican a ibu e o his esea ch is o explo e
expo -o ien ed companies and he abili y o pay axes.
This s udy examines he changes in expo a i s due o
he Gene alized Sys em o P e e ences plus (GSP plus)
s a us o he Eu opean Union (EU) o Pakis an on
company p o i abili y, which led o changes in ax pay-
men s. The impac o ade libe aliza ion on p o i s and
ax paymen may look simple, howe e , p e ious e-
sea ch has documen ed i s exis ence. The ela ionship
be ween ade libe aliza ion, ax paymen s and p o i s
is so basic o he mechanisms unde lying he heo y o
in e na ional ade and business and is one o he sig-
ni ican objec i es o his esea ch.
The co e goal o he EU Commission is o p o ide
access o he EU ma ke o de eloping coun ies
h ough in e na ional ade o he sake o elimina ion
o po e y, and o enhance sus ainable de elopmen ,
human igh s and good go e nance in Gene alized Sys-
em o p e e ences (GSP) bene icia ies. Mo eo e , in
GSP plus s a egy, he e is ull elimina ion o du y o
66% o a i lines as compa ed o he S anda d GSP
scheme o coun ies which a e weak in economic di-
e si ica ion and expo olumes. So, hese coun ies
e ec i ely implemen he GSP Regula ion o he im-
p o emen in human and labo igh s, en i onmen al
condi ions and go e nance. Acco ding o he (EU Re-
po 2016-2017), A menia, Boli ia, Cabo Ve de, Geo -
gia, Ky gyzs an, Mongolia, Pakis an, Pa aguay, he Phil-
ippines and S i Lanka a e he 10 GSP plus bene icia y
coun ies. Pakis an’s u iliza ion a e (96.5%) is he high-
es among hese 10 compa a o s. I s ex ile expo s
accoun o abou 74% o i s o al expo s o he EU.
Since 2006, he EU has go en in ol ed in FTAs wi h
Eas Asian coun ies. One o he mos signi ican FTAs is
he EU-China F ee T ade Ag eemen because China is
he egion’s la ges and mos dynamic economy. The e-
o e, China is he mos logical ading pa ne o he EU
among Eas Asian economies. Tha is one o he ea-
sons he EU was in e es ed in ini ia ing he ading
p e e ences wi h Pakis an. Fu he mo e, Pakis an has
a g ea geog aphical loca ion o link China wi h Eu ope
h ough he Gwada po . Tha is why his s udy has
highligh ed he signi icance o he EU’s Gene alized
Sys em o P e e ences (GSP plus) S a us o Pakis an and
how Pakis an can ea n ax e enue om his FTA.
The ade libe aliza ion analysis is signi ican ly
highligh ed by esea che s such as (Alexande , 2021;
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
se ices. Madsen and Damania (1996) e ealed ha in
he long un economic g ow h has no impac due o he
indi ec ax. Knelle e al. (1999) a gued ha economic
g ow h and indi ec ax ha e a posi i e ela ionship.
Howe e , cu en ly he mic o le el impac o ade lib-
e aliza ion on ax e enue is no a ma e o discussion
by esea che s.
Saeid (2008) ound gene ally ha ew a iables
impac bo h he le el and composi ion o o al ax e e-
nue while o he s impac he e enue le el in a manne
ha is s a is ically insigni ican o de eloping coun-
ies. Micah (2015) as well as Leu hold (1991) sc u i-
nized de e minan s o TAX o GDP and iden i ied ha
o eign ade aised he le el o axa ion o ha which
is s a is ically signi ican . S o sky and Wolde (1997);
Mascagni e al. (2022) examined he ela ionship be-
ween TAX/GDP and he sec o al composi ion o he
alue added and disclosed ha he le el o axa ion
posi i ely impac ed expo s. Mo eo e , he esul s o
Te ence e al. (2006) showed ha ade libe aliza ion is
s ongly linked o highe income ax e enue. Moham-
mad e al. (2016) disco e ed ha ade libe aliza ion in
he o m o a i educ ion appea s o ha e an impac
on ax s uc u e o de eloping coun ies. Gnangnon e
al. (2019) a gued ha hose coun ies which open hei
economies o ade a ain a highe posi i e impac o
ax e o m on ax e enue as compa ed o hose coun-
ies which ha e a lowe deg ee o in e na ional ade.
In he au ho ’s poin o iew, i is clea ha he compa-
ny le el impac o FTA on ax paymen s has no ye
been shown in p e ious li e a u e.
Resea che s ha e examined ee ade ag eemen s
in ecen li e a u e, such as Woo i e al. (2023), using
company-le el da a and ex ensi e da a on he pa ame-
e s o ade ag eemen s. Using a e ealed decision
c i e ion, Legge and Lukaszuk (2024) conduc ed e-
sea ch on FTA and ound a ixed cos componen o
usage ha businesses a oid, especially o u gen ship-
men s. Fu he mo e Pham e al. (2024) s udy examined
he impac o news epo s ega ding he EU-Vie nam
F ee T ade Ag eemen (EVFTA) on he Vie namese
s ock ma ke om 2010 o 2020. Mo eo e , analysis
has been made on how ee ade ag eemen s impac
he du a ion o ag icul u al expo s om he pe spec-
i e o a company pai o des ina ions. Yue Jin (2023)
ca ied ou his s udy using highly disagg ega ed com-
pany le el panel da a om Chinese ag icul u al expo -
e s. In e na ional ade and he isk associa ed wi h
bila e al exchange a es we e s udied by Ramin e al.
(2023). These ecen s udies examined how ee ade
ag eemen s (FTAs) a ec businesses, howe e hey
didn' ake in o accoun he impac o FTA on co po a e
ax o companies.
Mon eagudo & Wa anuki, 2003; Chish i e al., 2008).
None heless, he impac o he EU’s GSP plus on com-
pany co po a e ax has no been conside ed by e-
sea che s be o e. Fu he mo e, he be o e and a e
impac o he EU’s GSP plus on Pakis ani company co -
po a e ax has no been examined by inancial econo-
mis s. Thus, he goal o his s udy is o in es iga e be-
o e and a e impac o he EU’s GSP plus on Pakis ani
company co po a e ax o non- inancial companies o
he ex ile sec o . Mo eo e , his s udy examines he
impac o he EU’s Gene alised Sys em o P e e ences
(GSP) plus S a us on co po a e ax o he Pakis ani ex-
ile indus y and Fiscal Policy o policy make s. The
con ibu ion o his s udy is o iden i y whe he he
ex ile sec o is u ilizing he hund ed pe cen bene i o
GSP plus s a us and paying mo e co po a e ax o no .
This s udy assis s he iscal policy make s in o mula ing
he ax policy o he po en ial expo s sec o o he EU
as well as he inancial manage s o c ea e a co po a e
s a egy o mul ina ional companies, which a e ge ing
he bene i s om he EU’s GSP plus s a us o Pakis an.
The li e a u e e iew and he hypo hesis is elabo-
a ed in he second sec ion. Sec ion h ee explains he
me hodology and he ou h sec ion is abou he e-
sul s discussion. The las sec ion s a es he conclusion
and u u e aspec o he esea ch.
P e ious li e a u e discussed he impac o axa ion
on economic de elopmen , heo e ically as well as em-
pi ically. The inancial economis s ha e u ilized iscal
e o ms and ade policies o in es iga e he ela ion-
ship be ween axes and economic g ow h. The e-
sea che s like (Mascagni e al., 2021; Bellon e al.,
2022; Baunsgaa d & Keen, 2010; C i elli & Gup a, 2014;
C i elli, 2016; Gnangnon & B un, 2017) examined he
impac o ade libe aliza ion on public e enue, includ-
ing ax e enue.
Kashi and Ma yam (2018) in es iga ed he axes
and economic g ow h o Pakis an and hey ound he
posi i e ela ionship o economic g ow h and in e na-
ional ade ( a i s). Mo eo e , We e al. (2005) a -
gued ha he impac o di ec ax on economic g ow h
is nega i e, bu he impac o indi ec ax is insigni i-
can . A isoy and Unlukaplan (2010), disco e ed ha he
e ec o di ec ax is insigni ican on he economic
g ow h. Johansson e al. (2008) as well as A nold (2008)
s udies sugges ed a nega i e ela ionship be ween co -
po a e income ax and GDP pe capi a. Ne e heless,
Umo u and Anyiwe (2013) in es iga ed how di ec ax-
es aise economic g ow h. Simila ly, Onakoya and
A in inni (2016) e ealed ha co po a e ax has signi i-
can posi i e e ec on economic de elopmen . Fu he -
mo e, Ka as (1999) ound mino e ec s o axes on
p o i s in con as o impac s o axes on goods and
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
In ligh o he abo e discussion, he esea che s
ha e o ally igno ed he EU’s GSP plus impac on co po-
a e ax o Pakis ani companies. Tha is he eason his
esea ch ies o ill his gap. The ollowing hypo hesis
is de eloped on he basis o he abo e e iewed li e a-
u e:
H1: The EU’s GSP Plus s a us has signi ican impac on
co po a e ax o Pakis ani companies.
H2: The EU’s GSP Plus s a us has signi ican impac on
Pakis an's economic g ow h.
The co e aim o his s udy is o in es iga e he ela-
ionship be ween changes in a i wi h co po a e ax o
companies. This sc u iny can only be examined in non-
inancial companies. The e o e, he ocus is on 88 non-
inancial companies o he ex ile sec o . Reg ession
analysis is u ilized o in es iga e he impac o p e and
pos EU GSP plus on Pakis ani ex ile companies co po-
a e ax wi h he help o E- iews. Fu he mo e, he da-
a is ga he ed om annual epo s a ailable on he
websi e o he Pakis an S ock Exchange (PSE) o he
ex ile companies ega ding a iables on annual basis
om 2009 o 2020, as his ime pe iod co e he p e
and pos e ec o he GSP plus s a us o Pakis an,
which was in oduced in 2014.
Fo sc u iny pu poses, all lis ed non- inancial ex ile
companies on he Pakis an S ock Exchange (PSE) a e
he popula ion. Howe e , he c i e ia o sample selec-
ion o he majo expo s po en ial sec o o he EU is
he ex ile indus y because he appa el & clo hing
(USD 4.2 billion) and home ex iles (USD 2.3 billion)
expo s we e eco ded (Pakis an Business Council Re-
po , 2020).
I is impo an o es ablish a ela ionship be ween
co po a e ax and a i da a o he sake o de e min-
ing he e ec o changes in a i s. P e and pos EU
a es o impo a i s ha e been collec ed om he
Wo ld T ade O ganiza ion-MFN applied a i . The a e -
age o each ex ile sub-sec o is conside ed o de e -
mine be o e and a e a es o a i on an annual basis.
Fu he mo e, e e y company is linked wi h a HS 6 digi
code o each commodi y o he shi s in a i on an
annual basis.
The ax a io has been u ilized as a p oxy o co po-
a e ax o analysis pu poses. The nega i e ax a io is
conside ed ze o o hose yea s in which he company
aces a loss. The o mula o calcula e ax a io is ax
paid di ided by ne income.
In Baggs and B ande (2006) u ilized expo in ensi-
y as a measu e o expo o ien a ion. The in ensi y o
expo s e eals he sales’ sha e o Pakis an’s ex ile
indus y ha had been expo ing o he EU. Acco ding
o Goel and Sha ma (2015), he age o he company,
The s udy o Joseph e al. (2005) analyzed he FTAs
among he Eu opean Union wi h de eloping econo-
mies, and ound ha Mexico, Chile, and Tu key FTAs
a e mo e b oad and p o ound han he p e e en ial
educ ion in a i s. Ma yla (2008) in es iga ed he
ade be ween he EU and Geo gia has GSP plus s a us
and hey ound a wel a e gain o Geo gia and deepe
in eg a ion wi h he EU. S ephan e al. (2010) e ealed
ha he Uk aine inc eased ag icul u al p oduc i i y due
o imp o ed ma ke access o he EU. Yuhong e al.
(2016) analyzed he changes in China and Cen al and
Eas e n Eu ope (CEE) ade. The esul o hei s udy
e ealed ha CEE s a es and China had enhanced hei
sha es in each o he ’s ma ke s. The EU’s GSP plus s a-
us was examined by he esea che s, bu hey s ill
ha e no in es iga ed he GSP plus s a us on ax e e-
nue o any coun y.
Based on da a om Tajikis an, he ou come sug-
ges s ha he o e all e ec on epo ed ne ax pay-
men is dubious because o whe he businesses did
disclose he in o ma ion p ope ly o no (Okunogbe e
al., 2022). Addi ionally, among he key enabling ac o s
a e su icien s a ing and axpaye digi al li e acy
(Mascagni e al., 2023), highe ax au ho i ies' spending
on in o ma ion and communica ion echnology (ICT),
accoun abili y, and he adop ion o app op ia e an i-
co up ion measu es (Chalenda d e al., 2020). To as-
sess he impo ance o such enabling elemen s, he
esea che s used he Enhanced Digi al Accessibili y
Index (EDAI) Alpe e al. (2019) as one o he a ailable
p oxies o digi al enabling a iables. The e o e, hese
ac o s can help he go e nmen o gain a su ge in ax
e enue.
The majo i y o A ican businesses, acco ding o
Joshi e al. (2012), a e no pa o he ax au ho i ies'
ne wo k. The ac ha some egis e ed businesses and
indi iduals ail o ile e u ns o submi ze o iles in A i-
ca (San o o, 2021) is ano he p oblem. Due o hei lack
o us in he ax sys em and dissa is ac ion wi h go -
e nmen se ices, A ican axpaye s a e no e y eage
o pay axes (B a on & Gyimah, 2016; Isbell, 2017;
Blimpo e al., 2018). The majo i y o de eloping na ions
deal wi h he same issues ha we e men ioned ea lie .
The ela ionship be ween ade libe aliza ion and
company co po a e p o i is also e y signi ican o dis-
cuss he e because i he company ea ns co po a e
p o i h ough in e na ional ade hen i will be able o
pay co po a e ax, which will lead owa ds he econom-
ic g ow h o Pakis an. The e o e, i is pe inen o high-
ligh ed ha he p ominen esea che s like (Hussain
& Syed, 2020, 2022; S i hanpong, 2014; Mukhe jee and
Chanda, 2016; B einlich, 2016; Wagne , 2011; G azzi,
2012) explo e he impac o ade libe aliza ion on
company p o i s.
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
di e ences esul om company-speci ic consequen-
ces, hese me hodologies a e accu a e and sui able.
The da a includes T ime pe iod and majo N en e p i-
ses.
Iden i ying he companies ha a e mos likely o be
a ec ed by inc eases in expo a i s is c ucial. To
achie e he a o emen ioned objec i e, he expo in-
ensi y a iable and ela ed in e ac ion e m e ec s a e
employed. The en i e ex ile indus y expo s o he EU
di ided by he indus y's o al sales yields he expo
in ensi y. The p oduc o changes in expo in ensi y
and expo a i s is he expo in e ac ion e m. The
coe icien o he in e ac ion e ms indica es whe he
o no expo o ien a ion inc eases as a esul o
change in a i s.
The da a unca ion o he co po a e ax a iable is
he analysis's mos impo an ea u e. As a esul , all
obse a ions ha a e no posi i e o co po a ion ax
a e ega ded as 0. Acco ding o Woold idge (2002), his
ype o dependen a iable can be managed by em-
ploying he Tobi es ima e p ocess, e en wi h da a ac-
cu acy conce ns. Howe e , emo ing he co po a e ax
obse a ions ha a e no posi i e om he da a and
using O dina y Leas Squa es (OLS) is one way o sol e
he p oblem. Tobi eg ession is employed in his s udy
o accoun o business ax ac oss all obse a ions. Ad-
di ionally, only posi i e co po a ion ax obse a ions
a e employed in he h ee eg ession models i s
di e ence, OLS wi h andom e ec s, and OLS wi h ixed
e ec s.
The panel uni oo es is used o e i y ha he
panel da a is s a iona y. E e y se ies uses he LL panel
es , as desc ibed by Le in e al. (2002). The se ies' s a-
iona y is examined by aking in o accoun bo h he
indi idual in e cep and he indi idual in e cep plus
end. The es esul s e eal ha e e y a iable in his
s udy is signi ican , which is a clea indica ion ha he
da a is s a iona y.
The ax a io mean and median o Pakis an's EU
GSP plus s a us a e displayed in Table 1. Addi ionally,
he ku osis's ax a io alue is g ea e han 3, indi-
ca ing ha i is lep o-ku ic. Pakis an's expo a i can
ha e a maximum alue o 7.17%. In con as , an expo
a i 's minimum alue is ze o. The ax a io's median
alue, which is 0.13, is highe han he a e age alue o
he same. The ax a io is nega i ely skewed because o
his. In he ins ance o Pakis an's GSP plus s a us wi h
he EU, he mean ax a io o en e p ises is less han
he median alue, sugges ing a nega i ely skewed ax
a io alue.
which is a con ol a iable, is measu ed as he i s yea
o analysis sub ac ed om he yea o he business
opened up o 2020. The es o he a iables a e con-
side ed e o e ms, which a e conside ed in eg ession
analysis. Exchange a e is used as con ol a iable be-
cause his mac oeconomic a iable also impac s p o i -
abili y o he company, which will lead o paymen o
co po a e ax o he ax au ho i y. The da a o ex-
change a e is ga he ed on an annual basis om he
annual epo o he S a e Bank o Pakis an.
The ax a io is used as a dependen a iable. O he
independen a iables a e he changes in expo a i s.
On he basis o Baggs and B ande (2006), he ollowing
equa ion (1) is de eloped, ne e heless, majo amend-
men s ha e been c ea ed o he objec i e o examina-
ion.
(1)
Whe e:
TR = ax a io,
π = p o i ,
τx = expo s a i ,
C = he con ol a iables,
Ε = andom e o ,
I = i h company a ime is indica ed by he subsc ip s
i and ,
Δτ = he change in a i s e lec s he shi om he
p e ious o he p esen pe iod (as a esul , a a i de-
c ease occu s as a o able).
The con ol ac o s such as company size a e meas-
u ed by aking he na u al loga i hm o asse s. While
he o he con ol a iables like company age, in ensi y
o expo , in e ac ion o expo (change in expo a i
x expo in ensi y), and exchange a e ha e been used
as independen a iables.
Dexpo - o p e impac (change in expo Ta i x 0)
o o pos impac (change in expo Ta i x 1) depic s
he dummy in e ac ion o expo a i s. The e ec o
pe cen age change in expo a i on he ax a io is
explained by he coe icien o slope α3. Addi ionally,
a dummy a iable is de eloped in his s udy o compa-
e he e ec s o he pe cen age change in a i s on he
dependen a iable be o e and a e . Fo ha eason,
he yea s om 2009 o 2013 a e ega ded as "0," and
he yea s om 2014 o 2020 as "1”. Consequen ly, De-
xpo eco ds he pe cen age change in he expo a-
i 's p e- and pos -impac on he ax a io.
The balanced panel da a is used o co e he pe-
iod om 2009 o 2020 o he EU’s GSP plus s a us o
Pakis an. This esea ch uses company-speci ic andom
e ec s, company-speci ic ixed e ec s, and i s di e-
ences o analysis. Fu he mo e, since co po a e ax
0 1 2
3
ln ( )
x
i i i
i c i i
TR
Dexpo C
= + +
+ + +
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
a posi i ely skewed mean alue; he median age is
33.00 yea s.
The con ol a iables' desc ip i e s a is ics o Paki-
s an's GSP plus s a us wi h he EU a e shown in Table
2. The company's a e age age is 36.89 yea s, wi h
Table 1: Desc ip i e s a is ics
EU's GSP Plus S a us o Pakis an Tax Ra io Expo Ta i %
Mean 0.10 0.62
Median 0.13 0.01
Maximum 39.33 7.17
Minimum -355.31 0.00
Skewness -29.97 3.01
Ku osis 951.50 10.08
Sou ce: Au ho 's own wo k.
Table 2: Desc ip i e s a is ics o con ol a iables
EU's GSP Plus S a us
o Pakis an P o i Rs. Million Asse s Rs. Million Age Expo In ensi y
Mean 2.85 7.65 36.89 1.01
Median 2.92 7.61 33.00 0.93
Maximum 8.97 15.90 74.00 1.71
Minimum 0.00 3.12 10.00 0.08
Skewness 0.27 0.27 0.68 -0.37
Ku osis 1.53 4.55 2.73 2.40
Sou ce: Au ho ’s own wo k.
pe i y, which is consis en wi h he esul s o (We e
al., 2005; A isoy & Unlukaplan, 2010; Johansson e al.,
2008; A nold, 2008).
When he expo a i is subs i u ed o Dexpo in
he eg ession, he p e-EU GSP plus pe iod (2009–
2013) yields iden ical esul s. The ac ha he p o i is
ex emely posi i ely signi ican indica es ha ex ile
sec o companies a e aising hei p o i s as a esul o
hei expo o ien a ion and paying axes o he app o-
p ia e au ho i ies, bo h o which will suppo Pakis an's
economic g ow h. The indings a e simila like (Umo u
& Anyiwe, 2013; Onakoya & A in inni, 2016; Micah,
2015; Leu hold, 1991; S o sky & Wolde 1997).
Table 3 displays equa ion 1, which akes in o ac-
coun he Tobi eg ession o in es iga e he EU's GSP
plus s a us as well as he e ec o a i inc eases on
he co po a e ax a io. By looking a he co ela ion
be ween he wo a iables, he p oblem o mul i-
collinea i y be ween Dexpo and expo a i changes
is in es iga ed. As a esul , he expo a i is changed,
and he eg ession p oduces compa able esul s when
Dexpo is emo ed. The pos pe iod o EU's GSP plus
s a us o Pakis an om 2014 o 2020 ( eco ded using
Dexpo , a dummy x change in expo a i ) indica es
a negligible decline in expo -o ien ed en e p ises' ax
paymen s ela i e o o he companies, sugges ing ha
hese companies do no con ibu e o economic p os-
Table 3: EU's GSP plus e ec o a i changes on co po a e ax (Tobi -1)
Va iable Coe icien S d. E o z-S a is ic P ob.
In e cep -0.72 0.66 -1.08 0.28
P o i 0.25 0.04 5.72 0.00
Company Size 0.00 0.08 -0.01 0.99
Age -0.01 0.01 -1.29 0.20
Exchange Ra e 0.00 0.00 0.37 0.71
DExpo -1.71 2.22 -0.77 0.44
Log likelihood -1964.14
Sou ce: Au ho ’s own wo k.
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
e m yields an insigni ican esul wi h a posi i e sign
when he change in expo a i is mul iplied by he
expo in ensi y. I is impo an o no e ha he p o i
ma ches he ou come o speci ica ion 1 in ha i is ex-
emely posi i ely signi ican .
The speci ica ion 2 is illus a ed in Table 4, which
also includes he expo in ensi y and associa ed in e -
ac ion e m. The expo in ensi y exhibi s a posi i e
sign, sugges ing ha companies ha p io i ize expo s
end o gene a e highe p o i s and pay axes in com-
pa ison o o he businesses. Simila ly, he in e ac ion
Table 4: EU's GSP plus e ec o a i changes on co po a e ax (Tobi - 2)
Va iable Coe icien S d. E o z-S a is ic P ob.
In e cep -0.57 0.71 -0.80 0.42
P o i 0.24 0.04 5.49 0.00
Company Size 0.01 0.08 0.13 0.90
Age -0.01 0.01 -1.28 0.20
Expo In ensi y 0.14 0.34 0.42 0.68
Expo In e ac ion 30.69 42.31 0.73 0.47
Exchange Ra e 0.00 0.00 -0.42 0.67
DExpo -7.39 8.57 -0.86 0.39
Log likelihood -1963.27
Sou ce: Au ho ’s own wo k.
a e p e e able ins ead o andom e ec s. The ou -
comes o he ixed e ec s a e shown in Table 5, whe e
he expo in e ac ion e m yields posi i e signi ican
indings (a 0.07 le els), nea ly iden ical o speci ica ion
2. On he o he hand, he Dexpo on ax a io is nega-
i ely signi ican ly impac ed (a 0.06 le els).
Fo he eg ession o Speci ica ions 3 and 4 only
posi i e ax a io a e conside ed (only p o i able yea s
a e conside ed in which a company pays ax). Speci ica-
ion 3 is used o eg ess he andom e ec s model and
speci ica ion 4 is used o eg ess he ixed e ec s mod-
el, o he pu pose o iden i ying he app op ia e mod-
el. The Hausman Tes esul s sugges ha ixed e ec s
Table 5: EU's GSP plus e ec o a i changes on co po a e ax (OLS-wi h ixed e ec s)
Va iable Coe icien S d. E o z-S a is ic P ob.
In e cep 0.13 0.99 0.13 0.90
P o i -0.02 0.06 -0.37 0.71
Company Size 0.16 0.12 1.32 0.19
Age 0.01 0.01 0.39 0.69
Expo In ensi y -0.45 0.38 -1.19 0.24
Expo In e ac ion 83.44 45.29 1.84 0.07
Exchange Ra e 0.00 0.00 -0.37 0.71
DExpo -17.27 9.15 -1.89 0.06
R-squa ed 0.10
Adjus ed R-squa ed -0.01
Sou ce: Au ho ’s own wo k.
implying ha he ex ile indus y is expo ing i s’ p od-
uc s o he EU and ob aining p o i s, which will lead o
inc ease in ax paymen . (Te ence e al., 2006; Moham-
mad e al., 2016; Gnangnon e al., 2019) e eal he
iden ical ou come o hei esea ch.
Fi s di e ence eg ession is co e ed by speci ica-
ion 5, and Table 6 displays he ou comes. The indings
om speci ica ions 2 and 4 a e compa able in ha hey
show ha he Dexpo is nega i ely signi ican ollow-
ing he pos -2014 ime ame. The expo ela ionship
has a s ong posi i e impac on g ow h o ax a io,
Mazha Hussain Choudha y
The impac o he EU’s Gene alized Sys em o P e e ences plus s a us on
companies and iscal policy o Pakis an: A case o he ex ile indus y
Financial In e ne Qua e ly 2024, ol. 20 / no. 4
The Gene alized Sys em o P e e ences (GSP plus)
S a us o Pakis an, which was signed in Janua y 2014, is
he subjec ma e o his s udy's analysis, as well
ashow his FTA can gene a e ax money o Pakis an.
Thus, he pu pose o his esea ch is o use eg ession
analysis o examine he e ec s o he EU's GSP plus on
Pakis ani non- inancial en e p ises in he ex ile sec o
bo h be o e and a e he impac , om he ime pe iod
o 2009 o 2020. The ex ile indus y's businesses ap-
pea o be bene i ing om inc eased e enue due o
hei expo -o ien ed business s a egy and p omp ax
paymen s o he app op ia e au ho i ies, as indica ed
by he ac ha he p o i is ex emely posi i ely signi i-
can . Addi ionally, he e is a li le upwa d end in he
expo in ensi y, sugges ing ha companies concen-
a ing on expo s gene ally ea n highe p o i s and pay
highe axes in compa ison o o he companies in he
ex ile sec o . These indings make i abundan ly e i-
den ha he ex ile sec o is expo ing i s goods o he
EU in o de o u n a p o i and aise he amoun o
axes ha mus be paid. This is indica ed by he expo
in e ac ion's posi i e sign and by he ac ha i signi i-
can ly aised he ax a io. Pakis an's economy will ex-
pand as a esul . Howe e , hose companies o he ex-
ile sec o which ace expo compe i ion a e no able
o gene a e p o i and do no pay axes o he go e n-
men . The e o e, he ou come makes clea ha a iny
po ion o businesses do no p io i ize expo s, pay
lesse axes han o he businesses, and do no con ib-
u e o long- e m, sus ainable economic g ow h.
Thus, i is ecommended ha o inc ease he ex-
po s he iscal policy make s gi e ax subsidies on aw
ma e ials as well as on elec ici y. Mo eo e , he go -
e nmen may p o ide he incen i e o du y- ee impo
o ex iles and appa el machine y and spa e pa s.
Thus, hese ecommenda ions will ul ima ely educe
he cos o p oduc ion o he ex ile indus y. The Fed-
A e analyzing he esul s, he ac ha he p o i
is highly posi i ely signi ican sugges s ha businesses
in he ex ile sec o a e making mo e money as a esul
o hei expo - ocused business models and imely ax
paymen s o he ele an au ho i ies.
Consequen ly, his depic how Pakis an's economy
will g ow as a esul . Resea che s such as: Hussain and
Syed (2020, 2022), S i hanpong (2014); Mukhe jee and
Chanda (2016), and B einlich (2016), ha e epo ed
simila ou comes. The simila ou come is displayed in
Table 4, Speci ica ion 2 o Tobi Reg ession 2, whe e
modi ica ions o expo du ies signi ican ly boos com-
pany p o i abili y and abili y o pay co po a e ax o
imp o e he economic condi ion o Pakis an and sup-
po he H2.
Simila ly, expo in e ac ion shows posi i e signals,
sugges ing ha Pakis ani ex ile companies a e inc eas-
ing hei p o i s h ough expo -o ien ed business p ac-
ices wi h he EU and paying axes o he go e nmen .
The same s udy esul sa is ies H1. Mo eo e , i also
suppo ed he indings o s udies like (Mascagni e al.,
2023; Chalenda d e al., 2020; Alpe e al., 2019). How-
e e , he esul s indica e ha he expo in ensi y e m
has a nega i e sign due o expo compe i ion in which
he company's p o i abili y dec eases; hese esul s a e
endo sed by (Hussain & Syed, 2020, 2022).
The e o e, i is c ys al clea ha i a business
adop s new echnology o inc ease p oduc i i y, i
would likely esul in highe ea nings and highe ax
obliga ions. Because expo a i s a e declining, expo -
o ien ed businesses see inc eases in e enue and su g-
es in ax paymen s. Howe e , he expo i al ies cause
he companies' e enues o d op and hei ax pay-
men s o dec ease. Gene ally, hese de elopmen s will
con ibu e o Pakis an's sus ainable economic g ow h.
The e o e, he esul s a e aligned wi h hypo hesis (H1)
as well as (H2) and a e accep able.
Table 6: EU's GSP Plus E ec o a i changes on co po a e ax (OLS-wi h i s di e ence)
Va iable Coe icien S d. E o z-S a is ic P ob.
In e cep 0.11 1.01 0.11 0.91
P o i -0.02 0.07 -0.29 0.77
Company Size 0.09 0.12 0.77 0.44
Age 0.00 0.01 -0.09 0.93
Expo In ensi y -0.98 0.52 -1.90 0.06
Expo In e ac ion 141.94 62.12 2.28 0.02
Exchange Ra e 0.00 0.01 0.56 0.58
DExpo -26.57 12.54 -2.12 0.03
R-squa ed 0.01
Adjus ed R-squa ed 0.00
Sou ce: Au ho ’s own wo k.
