Measure for tax compliance fills in as lifeblood for the administration of any country. Tax avoidance in Pakistan is high, which has prompted weakened financial or economic circumstances and the absence of adequate public services delivery. However, tax compliance is not just the financial payments made by businesses in lieu of their tax liabilities. But it also involves the cost incurred in completing the documentation and other overheads besides taxes. These often create impediments in doing transactions in the formal economy. The Coase theorem of higher transaction cost dettering the trade itself seems to prevail in the case of Pakistan. This thesis uses the economics of tax compliance according to different point views. The purpose of this study is to give further understanding in tax compliance debate by assessing national and international literature along with providing an empirical basis for identifying the true tax compliance cost to businesses in Pakistan. For this study analyses the tax compliance costs of businesses in Faisalabad. The objectives of the study are to study the tax compliance behaviour of the businesses/firms in Faisalabad, to study the tax compliance costs by, types of businesses/firms and also identify the firm specific variables leading to: tax compliance deterrence. To achieve the objectives of this study questionnaire based primary data is collected from the business of Faisalabad. For collection of data purposive sampling technique was used based on the business sizes and types of their businesses. For the econometric analysis simple linear model was estimated by using STATA package. Ordinary Least Square (OLS) multiple regression analysis along with the descriptive statistics of the variables was conducted using of independent variables i.e. age of businesses, type of businesses, audit action and frequency of return on the dependent variable i.e. The findings show that that age of businesses, type of business, audit action and frequency of return positively affect cost of tax compliance. Moreover, various policy recommendations have been given at the end of the study as well. Supervisor:- Dr. Mahmood Khalid