Tax revenues play an important role in the overall working of the economy. Government expenditures are considered to have a positive impact on the growth of the economy and the expenditures are based on the total revenue collection. Most of the developing countries suffer from the budget deficit problem so they are always looking for new sources of revenue collection. The growing government expenditure puts more pressure on the internal revenue generation and the rigidity of the tax system makes it more difficult to raise the revenue. Generally, the tax collection of the developing countries is less than their expenditure so great effort is required in their revenue generation. For developing countries, a higher value of elasticity is preferable as it indicates the automatic growth in the tax revenue that helps in meeting the increasing government expenditure. However, if the elasticity of the tax system is low then the revenue generation is done through the discretionary changes, which can be seen through the buoyancy value. The in elastic revenue system forces the government to make regular discretionary changes in order to maintain or increase the government revenue. These frequent changes have a negative impact on the resource and the expenditure allocation and distribution in the economy. Pakistan is facing a serious revenue problem as it is unable to collect enough revenue due to which the government needs to borrow. Tax to GDP ratio is an important measure of the revenue situation of a country. Supervisor:- Dr. Ahsan Ul Haq Satti