Pakistan Reader

Pakistan Reader
Pakistan's narrow tax base: Failures so far, challenges ahead

Dhriti Mukherjee
6 May 2024
Photo Source: Dawn

What is the tax base?
Currently, Pakistan’s tax-to-GDP ratio stands at 11.4 per cent with an existing gap equivalent to 7.6 per cent of GDP.  As of 26 December 2023, the number of active taxpayers (ATL) in Pakistan reached 5.3 million, of which the number of individual taxpayers was 3.69 million and the number of corporate/association persons was 1.67 million. Shortly before the Federal Board of Revenue (FBR) released this data, it informed the Senate Standing Committee on Finance and Revenue that despite 11.4 million people being registered, not all of them were filing their income tax returns. As per the ATL released by the FBR on 1 March 2021, the number of active taxpayers declined by 30 per cent, meaning two out of every three persons who had valid National Tax Numbers (NTNs) and were doing business in Pakistan did not submit their annual income tax returns. A report released by the Organisation for Economic Co-operation and Development (OECD) in the same year highlighted that Pakistan’s tax-to-GDP ratio was 10.3 per cent in 2021, below the Asia and Pacific average of 19.8 per cent by 9.4 percentage points.
 
Why is it narrow?
First, as per the World Bank, Pakistan’s narrow tax base is due to “exemptions and concessions for some large economic sectors and industries, including agriculture, construction and textiles.” Tax exemptions and concessions for political gains have played a role in reducing the tax base. In 2022 alone, exemptions led to an estimated loss of PKR 400 billion as per the Pakistan Economic Survey. The tax system of Pakistan relies predominantly on indirect taxation, with indirect taxes contributing to over 60 per cent of the FBR’s tax collection in 2021-22. This in turn suffers from inequity as exemptions or zero ratings are granted to some sectors.
 
Secondly, tax evasion is a major issue. During a meeting on the FBR’s reform initiative, it was highlighted that in 2024, only 2.4 per cent of Pakistan’s population files returns, of which 55.6 per cent are Nil filers who pay no taxes, and only 3.3 per cent of taxpayers account for 90 per cent of the income tax collection. An analysis in Dawn pointed out that the “shadow economy accounts for roughly 40 per cent of the nation’s GDP,” enabling high levels of tax evasion. For instance, there is significant tax evasion in the tea sector due to “smuggling and illegal trade.” The automotive sector and pharmaceutical industry are also both vulnerable to tax evasion through smuggling. In the real estate sector, under-invoicing is rampant, and involves “deliberately undervaluing properties during transactions to evade taxes.” In 2021, in 300 property transactions in Karachi, an excess of PKR 13 billion was paid compared to the property valuation rates set by the FBR, indicating the “existence of considerable unreported or untaxed funds within the market.”
 
Third, failure of banks to comply with the law. As of March 2024, 80 per cent of bank accounts in Pakistan had not been declared to the tax authorities, meaning “less than 20 per cent of bank accounts appear in tax returns filed with the FBR” as per official documents. Despite commercial banks being legally obligated to share the details of their bank account holders with the FBR, banks do not comply with the law meaning the FBR is unaware of the wealth parked in more than 80 per cent of accounts.
 
What are the World Bank’s suggestions?
First, it asked Pakistan to adopt a national fiscal policy by aligning federal and provincial spending with constitutional mandates, merging federal and provincial revenue agencies into a single general sales tax (GST) collection agency, and taxing agriculture, capital gains, and real estate in the FY25 budget. It also asked the government to “implement the new Fiscal Responsibility and Debt Limitation Acts (FDRLA) at the federal and provincial levels, including through development and implementation of a national medium-term fiscal framework through the FY25 budget process.”
 
Second, on the GST, the World Bank asked for tangible progress on GST harmonization across the federation, “including through rollout of the GST portal” and move towards “rate harmonization to facilitate tax compliance and the provision of input tax credits.” The government was also suggested to consolidate “all GST collection responsibilities with a single agency, which could then distribute revenues in accordance with constitutional provisions” to make administration more efficient.
 
Third, the World Bank demanded actions to mobilize revenues from underutilized sources, especially those relating to the unfinished agenda of the 7th National Finance Commission (NFC) award of 2010: urban immovable property tax, agricultural income tax, and capital gain taxes. While the NFC recommended the federal and provincial governments to “streamline their tax collection systems to reduce leakages and increase their revenue through efforts to improve taxes and achieve a tax-to-GDP ratio of 15 per cent by terminal year 2014-15,” it was weakly drafted and unable to fulfil its objective.
 
Fourth, for agricultural income tax, the government was asked to make a consistent definition of land area and set common minimum rates on the basis of crop acreage. On capital gains tax, the World Bank instructed the government to unify the treatment of builders and property developers, simplify taxes related to capital gains, and remove differential rates. These broader revenue reforms, directed at expanding the tax base, would require closing existing corporate and sales tax exemptions, and enhancing social protection to compensate poor households for negative impacts.
 
Why have successive governments been unable to expand it?
First, the failure of the FBR. The last few years have unveiled the FBR’s dysfunctional nature, as it failed on the fronts of revenue collections, issuance of due refunds, plugging leakages, and widening tax base. In February 2024, the FBR’s tax collection fell short of the target by almost PKR 33 billion, due to lower collection of domestic taxes and customs duty. This followed a PKR nine billion shortfall in January. The FBR has also been slow in implementing the decision made three years ago to connect professional services online with tax machinery in eight major cities. Failure to fully implement this decision means professional service providers in urban cities who earn money mostly in cash have not been paying tax on it. Further, it failed to install point-of-sale (POS) systems at large retailer locations. An analysis in The Friday Times criticized the FBR’s performance for being “pathetically abysmal despite resorting to enormous withholding taxes and all kinds of highhandedness.”
 
Second, the government does not tax certain sectors for political reasons. As pointed out by an editorial in Dawn, the 2023 budget was designed in a way that would satisfy the IMF’s expectation of a broader tax base, as part of which the tax target was eventually revised upwards. Despite this, the then Finance Minister, Ishaq Dar, “tiptoed around the broader tax policy goal of effectively taxing undertaxed sectors such as retail, agriculture and real estate — especially incomes from these sectors.” However, the editorial argued that this was not unprecedented, as parties including the PML-N, and “the powerful civil and military bureaucracy are averse to taxing incomes from retail, real estate and agriculture, the economy’s three largest segments, because of their own vested interests.” For instance, former FBR head Shabbar Zaidi had claimed that he was prevented by the previous army chief from taking steps to document the massive ‘file’ business in real estate. Even the IMF pointed out that the “Pakistan government needs to collect higher taxes by withdrawing subsidies to the rich.”
 
Third, failure of federation and provincial executives. An analysis in The Express Tribune highlighted that almost 90 per cent of the tax collection comes from the FBR taxes, while “the contribution by provinces remains a dismal one per cent of the revenue effort, despite a reasonably good tax base of property, agricultural and services sales tax.” Thus the federation and provincial executives have failed in “levying and collecting a fair amount of taxes.”
 
Fourth, lack of fear of taxpayers. Both the FBR and provincial governments have failed to create a “perception in the mind of taxpayers about the high probability of being caught, if non-reporting or under-reporting one’s income,” as per an analysis in The Express Tribune. Even if an individual is found to be guilty of evading taxes, the “frail and weak prosecution and appellate system” means that there is “almost zero threat of penalties and consequences,” and the government has done little to change this effectively.


PREVIOUS COMMENTS

May 2026 | CWA # 2093

Kirsten Wilfred Coelho

The US-Iran War
Why is the UK reluctant to engage?
May 2026 | CWA # 2092

NIAS Global Politics Team

The US-Iran War, Week Ten
CW Column on Middle East: Escalating Israeli Aggression in Lebanon I UAE’s Covert Manoeuvres
May 2026 | CWA # 2091

Brighty Ann Sarah

Conflicts in the Middle East:
Escalating Israeli Aggression in Lebanon I UAE’s Covert Manoeuvres 
May 2026 | CWA # 2090

Brighty Ann Sarah

The US-Iran War, Week Ten:
Fraying Ceasefire, Renewed Negotiations and the Risk of a Stalemate
May 2026 | CWA # 2088

Nithin V

King Charles's US Visit: 
Emphasis on strong bilateral relations, democratic values and security cooperation
May 2026 | CWA # 2086

Aishal Hab Yousuf

UAE’s Exit from OPEC: 
Implications for the Middle East and the Energy Market
May 2026 | CWA # 2083

Brighty Ann Sarah

The US-Iran War, Week Nine:
Deadlocked Negotiations, Competing Agendas and Domestic Pressure
May 2026 | CWA # 2082

Akshath Kaimal

Escalating Violence in Mali:
Between Ethnic Insurgencies, Jihadist Attacks, and Military Coups
April 2026 | CWA # 2074

Brighty Ann Sarah

Israel-Lebanon Ceasefire:
Asymmetric Terms, Fragile Truce and Israeli Occupation
April 2026 | CWA # 2073

Akshath Kaimal

The US-Iran War, Week Eight:
A Fragile Ceasefire, Attempts to Control Hormuz and the Stalled Talks in Islamabad
April 2026 | CWA # 2072

Anu Maria Joseph

Three Years of War in Sudan
Prolonged Stalemate, Humanitarian Cost, External Interventions and Regional Fallouts
April 2026 | CWA # 2069

Padmashree Anandhan

The War in Ukraine
Expanding Drone Warfare, Russia's Strategic Patience and Ukraine's Diplomatic Outreach
April 2026 | CWA # 2068

Femy Francis 

China-Japan Tensions
Escalating Defence Posturing and Economic Decoupling
April 2026 | CWA # 2067

Anu Maria Joseph

Conflicts in Africa
Continuing Conflicts in Sudan, South Sudan and DR Congo, Security issues in Nigeria, and Political Instability in Madagascar
April 2026 | CWA # 2066

Akshath Kaimal

The Pakistan-Afghanistan Conflict
Recurrent Clashes, Defiant Taliban, Contesting Narratives and Emerging China’s Role
April 2026 | CWA # 2065

Lakshmi Venugopal Menon

The Middle East (Jan–Mar 2026):
The US-Iran War, Israel-Hamas Conflict and their interconnected fallouts
April 2026 | CWA # 2064

Anwesha Ghosh

Afghanistan (Jan–Mar 2026):
Gender Repression, Leadership Rifts, Regional Realignments and Clashes with Pakistan
April 2026 | CWA # 2063

Ramya B

Russia (Jan-Mar 2026)
Assertive Military Posture, Attempts for an Economic Turnaround and Search for Partners
April 2026 | CWA # 2062

Himani Pant

Europe (Jan-Mar 2026)
Trade diversification & FTAs, Increased defence spending, Tightening irregular migration and Economic slowdown
April 2026 | CWA # 2061

S Shaji

Africa (Jan-Mar 2026)
Elections, Civil Wars, Militancy and Peace Initiatives
April 2026 | CWA # 2059

Adarsh Vijay

India and the World (Jan-Mar 2026)
Maintaining Strategic Autonomy, Balancing the US relations and Resetting the China ties 
April 2026 | CWA # 2058

Nishchal N Pandey  & Mahesh Raj Bhatta

Nepal (Jan-Mar 2026)
Political Upheaval, Generational Change and Economic Uncertainty
April 2026 | CWA # 2057

Bibhu Prasad Routray

Myanmar (Jan-Mar 2026)
An Illegitimate Regime’s Consolidation Game
April 2026 | CWA # 2056

Ashik J Bonofer

Southeast Asia (Jan-Mar 2026)
Deteriorating situation in Myanmar, Philippines as the ASEAN Chair, New government in Thailand, and Economic & Environmental challenges
April 2026 | CWA # 2055

Haans J Freddy

East Asia (Jan-Mar 2026)
China’s military operations near Taiwan, Japan-China tensions and South Korea’s security challenges
April 2026 | CWA # 2052

Shreya Upadhyay

The United States (Jan-Mar 2026)
Tariffs, Ukraine, Iran and Operationalization of Trump’s World Order
March 2026 | CWA # 2039

Femy Francis

Trump-Xi Meeting
Why did Trump reschedule it? What does that mean?
March 2026 | CWA # 2035

Akshath Kaimal

Pakistan-Afghanistan Conflict
Broken ceasefire, Expanding military strikes and Worsening humanitarian situation
March 2026 | CWA # 2033

Mahesh Bhatta

Nepal after elections:
Five major challenges for the new government
March 2026 | CWA # 2024

Lekshmi MK

The UN and the Iran-US War
UNSC Resolution 2817 between “Clear and Unified Message” and “Manifest Injustice”
March 2026 | CWA # 2023

Femy Francis

China’s Two Sessions 2026
New Five-Year Plan, Ethnic Unity Law, and an Enhanced Defence Budget
March 2026 | CWA # 2019

Akshath Kaimal

Rising Violence in Nigeria
Limited State Capacity, Multiple Actors, and a Complex Security Environment
March 2026 | CWA # 2012

Padmashree Anandhan

The War in Ukraine
Long-range strikes, Defence adaptation and the EU’s energy dependence
March 2026 | CWA # 2010

Mahesh Bhatta

Nepal Elections 2026
The Rise of the “New” and the Fall of the “Old”
March 2026 | CWA # 2009

Sreemaya Nair

Nepal Elections 2026
Rise of a new leadership and Reset in political landscape
February 2026 | CWA # 1998

Anu Maria Joseph

Instability in Sudan
Response to the genocide call and the threats of a regional spillover
February 2026 | CWA # 1985

Abhimanyu Solanki

Basant in Pakistan
The return of Basant, and what it signifies
February 2026 | CWA # 1977

Anu Maria Joseph

Violence in Nigeria
US military deployment amidst worsening insurgency
February 2026 | CWA # 1976

Lekshmi MK

The War in Ukraine
The Geneva Talks and Growing Negotiation Asymmetry
December 2025 | CWA # 1971

Vani Vyshnavi Jupudi

Pakistan Budget 2025-26
Legislating stabilisation under IMF discipline and coalition constraints
December 2025 | CWA # 1970

Aparna A Nair

Pakistan & China
Ten Years of China-Pakistan Economic Corridor (CPEC)
November 2025 | CWA # 1968

Vani Vyshnavi Jupudi

Pakistan and the US
A New opening, or another cycle?
February 2026 | CWA # 1959

Yesasvi Koganti

UK and China
PM Keir Starmer’s visit and the Recalibration of Economic, Strategic, and Domestic ties
January 2026 | CWA # 1946

R Preetha

The Davos Summit 2026
Five Major Takeaways from The World Economic Forum
December 2025 | CWA # 1931

Padmashree Anandhan

NATO Summit 2025
December 2025 | CWA # 1924

Padmashree Anandhan

NATO Summit 2025
August 2025 | CWA # 1801

R Preetha

28 August 1963
Martin Luther King's "I Have a Dream" speech and the Civil Rights Movement in the US
August 2025 | CWA # 1790

GP Team

The World This Week#323-324
The Trump-Putin meeting & the US-China tariff extension
August 2025 | CWA # 1780

Abhiruchi Chowdhury

Trump tariffs:
Weaponization of access to the US economy
August 2025 | CWA # 1779

GP Team

The World This Week#322
US tariffs on India, Brazil and Canada & the EU-US trade deal
August 2025 | CWA # 1778

Lekshmi MK

28 July 1914
Austria-Hungary declares war on Serbia, starting the First World War
July 2025 | CWA # 1770

Abhiruchi Chowdhury

Pakistan-Afghanistan relations:
Why the focus on terrorism, refugees, and Uzbekistan as the third partner?
July 2025 | CWA # 1769

GP Team

The World This Week#321
Indian PM Modi's visit to the Maldives I Elections to the Upper House in Japan
July 2025 | CWA # 1762

Lekshmi MK

Ocean Darkening: 
What is the phenomenon? What are its effects? And who are more vulnerable?
July 2025 | CWA # 1749

R Preetha

Africa as the Hunger Epicenter
Of the 13 Global Hunger Hotspots, 8 are in Africa: Five reasons why
July 2025 | CWA # 1748

GP Team

The World This Week #318
PM Modi’s Visit to Trinidad and Tobago & Ghana, One big beautiful bill, and Quad Foreign Ministers Meeting
July 2025 | CWA # 1744

Chittrothu Vaihali

EU-Canada Summit 2025
What is security and defence partnership all about?
July 2025 | CWA # 1742

IPRI Team

Conflict Weekly # 287-88
The 12 Day War and the Congo-Rwanda Peace Deal
July 2025 | CWA # 1738

Fleur Elizabeth Philip

Thailand and Cambodia
What was the phone call between PM Shinawatra and President of Senate Hun Sen? What is the border dispute between the two? Why has this become an issue?
June 2025 | CWA # 1735

Padmashree Anandhan

NATO Summit 2025:
Trump making Europe great again
June 2025 | CWA # 1734

GP Team

The World This Week #317
NATO Summit 2025 and Russia-Mali bilateral agreements
June 2025 | CWA # 1733

Ananya Dinesh

China and the Pacific Islands 
What was the recent China-PIC joint statement about? What it says, and what it means?
June 2025 | CWA # 1728

M Kejia

G7 Summit 2025:
The Focus on the Middle East and Trade negotiations
June 2025 | CWA # 1727

Aparna A Nair

Second China-Central Asia Summit:
China’s continuing search for regional partners, and the emphasis on the BRI
June 2025 | CWA # 1726

GP Team

The World This Week #316
China-Central Asia Summit in Kazakhstan, and the G7 Summit in Canada
June 2025 | CWA # 1725

Brighty Ann Sarah, R Preetha, Santhiya M, Aparna A Nair & M Kejia

Operation Midnight Hammer: US bombs three nuclear sites in Iran
What were the three Iranian nuclear sites that were targeted? What are the B2 Bombers and Bunker Buster Bombs? What do these attacks mean? What Next?
June 2025 | CWA # 1724

IPRI Team

Conflict Weekly #286
The Spiralling Israel-Iran Crisis, and the Dangerous Hunger Hotspots
June 2025 | CWA # 1721

Rizwana Banu S and Santhiya M

Who are the Afrikaners?
Why is Trump interested in the Afrikaner question in South Africa?
June 2025 | CWA # 1720

Lekshmi MK

New WMO Report on Arctic Warming
What are the social, economic and environmental implications of Arctic warming
June 2025 | CWA # 1719

J Yamini  

China’s EV Surge
What contributes to the rise of BYD
June 2025 | CWA # 1717

J Yamini

Gender Violence in Pakistan:
What are the larger issues in the Noor Mukadam case?
June 2025 | CWA # 1715

Femy Francis

The US-China:
On Tariffs, Rare Earths and Visas
June 2025 | CWA # 1713

GP Team

The World This Week #315
The UN Ocean Conference in France and the US-China Meeting in London
June 2025 | CWA # 1709

IPRI Team

Conflict Weekly #284-285
Cambodia-Thailand Border Tensions, Protests in the US, and the Indigenous Māori question in New Zealand
June 2025 | CWA # 1705

GP Team

The World This Week #314
Elections in South Korea and Poland I China and the Pacific Island Countries I Bangladesh Election Announcement 2026
June 2025 | CWA # 1703

M Kejia 

Sagarmatha Sambaad in Nepal
Kathmandu’s Global Agenda for the Himalayas
June 2025 | CWA # 1700

R Preetha

Ethiopia bans the TPLF
What does the TPLF ban mean for the Pretoria agreement? What next for Ethiopia?
June 2025 | CWA # 1694

Aashish Ganeshan

The US:
Harvard vs Trump Administration
June 2025 | CWA # 1691

GP Team

The World This Week #313
China-ASEAN-GCC Summit I President Macron's visit to South East Asia I Trump Vs Harvard
May 2025 | CWA # 1690

GP Team

The World This Week #312
Elections in Romania, Portugal & Poland I UK-EU Summit
May 2025 | CWA # 1689

Padmashree Anandhan

Ukraine
Continuing Russia’s Aerial Attacks, despite exchange of prisoners
May 2025 | CWA # 1688

Ayan Datta

Gaza
The Humanitarian Crisis and Israel’s Renewed Offensive
May 2025 | CWA # 1685

Aparna A Nair

UK-EU Summit:
First step towards a reset
May 2025 | CWA # 1683

Aashish Ganeshan

Elections in Portugal:
The Rise of Chega Party and the Search for Political Stability
May 2025 | CWA # 1679

Aashish Ganeshan

US in the Middle Easr
Trump’s visit to Saudi Arabia, Qatar and UAE
May 2025 | CWA # 1678

Gauri Gupta

China in Latin America
China-CELAC forum: Strengthening ties with Latin America and Caribbean
May 2025 | CWA # 1677

GP Team

The World This Week #310-311
China in Latin America and the Carribbean I Trump's Middle East Visit I Denmark as the new Arctic Chair
May 2025 | CWA # 1675

Lekshmi MK

Turkey:
PKK disbands after 40 years of armed insurgency
May 2025 | CWA # 1673

Padmashree Anandhan

Ukraine:
The Discussion in Turkiye and the Elusive Ceasefire
May 2025 | CWA # 1672

D Suba Chandran

India and Pakistan:
De-escalation and the “New Normal”
May 2025 | CWA # 1671

Abhiruchi Chowdhury

US, Ukraine and Russia:
Air attacks amidst a Minerals deal and Ceasefire Proposals
May 2025 | CWA # 1670

Fleur Elizabeth Philip

Singapore Elections in 2025:
People’s Action Party (PAP) Wins, Again
May 2025 | CWA # 1667

R Preetha and Brighty Ann Sarah

East Asia:
Tough Tariff Negotiations with the US
May 2025 | CWA # 1666

Padmashree Anandhan

The US-Ukraine
The mineral deal with the US
May 2025 | CWA # 1665
Conflict Weekly # 280-81
India-Pakistan De-escalation I Ukraine Discussion in Istanbul I The Battle over Port Sudan I Disbanding of PKK in Turkiye I France-Algeria Diplomatic Tensions
May 2025 | CWA # 1663

R Preetha

Canada Elections 2025:
What do the results convey? What next for Mark Carney?
March 2024 | CWA # 1251

NIAS Africa Team

Africa This Week
February 2024 | CWA # 1226

NIAS Africa Team

Africa This Week
October 2023 | CWA # 1091

Annem Naga Bindhu Madhuri

Issues for Europe
July 2023 | CWA # 1012

Bibhu Prasad Routray

Myanmar continues to burn
December 2022 | CWA # 879

Padmashree Anandhan

The Ukraine War
November 2022 | CWA # 838

Rishma Banerjee

Tracing Europe's droughts
March 2022 | CWA # 705

NIAS Africa Team

In Focus: Libya
December 2021 | CWA # 630

GP Team

Europe in 2021
October 2021 | CWA # 588

Abigail Miriam Fernandez

TLP is back again
August 2021 | CWA # 528

STIR Team

Space Tourism
September 2019 | CWA # 162

Lakshman Chakravarthy N

5G: A Primer
December 2018 | CWA # 71

Mahesh Bhatta

Nepal
December 2018 | CWA # 70

Nasima Khatoon

The Maldives
December 2018 | CWA # 69

Harini Madhusudan

India
December 2018 | CWA # 68

Sourina Bej

Bangladesh
December 2018 | CWA # 67

Seetha Lakshmi Dinesh Iyer

Afghanistan