Tax Reforms in Pakistan: Digitization and Revenue Leakages

Since Pakistan gained independence in 1947 the taxation system within the country has undergone multiple significant alterations[1]. Before independence, the tax framework followed British colonial design with its priority on customs duties and excise taxes as indirect taxation methods. Since 2010 Constitutional 18th Amendment decentralized tax authority so provincial governments could tax services along with introducing numerous reforms to update the tax system.

Direct and indirect taxation systems have undergone reform to boost revenue collection since the beginning of this decade. The Federal Board of Revenue (FBR) built a self-assessment for income tax assessment while modernizing tax rates to improve taxpayer compliance levels. The taxation challenges persist because Pakistan maintains low tax ratios to its GDP and indirectly depends on non-direct tax collections.

For at least thirty years, tax-related topics have dominated policy discussions and debates[2]. The idea that Pakistan is a nation that neither collects adequate taxes nor has a tax-paying culture has been widely accepted and propagated from pulpits. The country has been portrayed as completely immoral and as having a state on the verge of collapse due to the associated narrative on corruption, which started extremely high in Pakistan. This is true even though a large number of our comparable nations, like Bangladesh, Indonesia, Malaysia, and others, are not performing significantly better than we are[3].

Tax System Components

The tax system includes multiple essential components

The taxation system in Pakistan comprises several key components:

1. Income Tax

The Income Tax Ordinance of 2001 establishes all taxation rules regarding income. The system applies progressive taxation with brackets that determine different tax rates according to personal income slabs. People earning less than  PKR 600,000 do not need to file taxes but individuals with greater than PKR 5.6 million taxable earnings must pay tax at a rate of up to 40%. Withholding mechanisms function as the main vehicle for collecting income tax payments because they claim about 70% of all direct tax revenues[4].

• Sales Tax

Value-added tax such as sales tax is a tax imposed on goods or services. The rate of sales tax imposed on goods by the federal government is 18%, while the provincial governments levy sales tax on services at varying rates (e.g.15% in Sindh and Khyber Pakhtunkhwa) after the 18th Amendment returned power to the provinces.  The aggregate collection of sales tax is a major source of revenue for federal and provincial governments, accounting for almost half of tax revenues in collections.

• Federal Excise Duty

It is levied on goods produced in Pakistan, or imported into Pakistan, including alcohol, tobacco, and petroleum products. High-demand items are targeted by excise duty to regulate consumption and provide revenue. The Federal Board of Revenue is in charge of the collection of federal excise duties (fundamental for the working of the government).

Pakistan’s Tax Benefits

In Pakistan[5], taxes are essential for fostering economic expansion and advancement. The main source of funding for the Pakistani government is taxation. It contributes to the funding of social welfare initiatives, infrastructure improvements, and public services. The government can raise enough money to cover the requirements of the nation and encourage long-term economic growth with a well-designed tax structure.

Additionally, taxes support Pakistan’s budgetary stability. It makes it possible for the government to successfully oversee the nation’s finances and prevent budget deficits. The government may regulate inflation, manage the national debt, and foster economic stability by imposing taxes.

Investment in Pakistan might also be stimulated by tax policy. The government may encourage economic growth, generate employment, and draw in both domestic and international investment by offering tax advantages to companies and investors.

Notwithstanding the difficulties, Pakistan offers several taxation possibilities, such as international collaboration, digitization, and tax changes which this article will explore.

Current Tax Conditions

Everywhere, there is a process of development and advancement, but in Pakistan’s case, we are going backwards, from development to decline. We have been working to implement reforms for the past seven decades, but they have never been implemented in a meaningful way. As a result, even with the implementation of tax changes, the economic base remains precarious. Taxes are a byproduct of economic expansion, but throughout the last forty years, this idea has been completely reversed, leading to severe economic distortions and the loss of the tax base[6].

Confiscatory taxation and the absence of a social contract between the people and the government are grave issues because, in the absence of any benefit, the public loses interest in and incentive for paying taxes. Confiscatory taxation refers to the rising demand for uncompensated taxes. The economy is suffering as a result of the exploitative and deceptive taxing system. Changing the paradigm of tax policy is one of the biggest obstacles; we must change towards optimum taxation, which will motivate companies to perform better and eventually increase tax revenue collection for the government.

Some tax reform alternatives are being proposed; while the taxpayer is required to pay taxes, he also has certain rights that should be appropriately enacted for his protection. New tax rules are required, and they should be more straightforward enough for everyone to grasp. Harmonizing the tax system requires combining federal and provincial tax collection under a single authority, such as a one-window operation, and establishing a “national tax tribunal,” a specialized forum for resolving complaints from both departments and taxpayers. The tax system has issues, yet there is no space and the creation of the “national tax tribunal,” a specialized forum for resolving complaints from both the department and taxpayers. The tax system has clear problems, but there isn’t enough space or ability to talk about them and implement changes. We are constantly subjected to external agendas that claim to be in our best interests and that we must follow through on.

Challenges with the Taxation Management of Pakistan

Non-compliance is too simple, and the tax payment process is too complicated. Numerous taxation authorities have complex tax rates, and complying with them comes at a great expense. The excise and taxation department still operates independently, and each province has its taxing agency in addition to the FBR. Five separate tax returns may need to be filed by the same individual, and the procedure is onerous for each. Disguising your true income or simply staying in the unorganized sector, free from tax requirements, is not too difficult.

Limited coverage of taxable entities is known as a narrow tax base. High rates of non-compliance and underreporting are examples of tax evasion and avoidance. Poor Documentation; Insufficient openness and record-keeping. There are tax Exemptions and Concessions; The taxable base is decreased by significant exemptions. The federal and provincial tax agencies do not coordinate or integrate, resulting in a fragmented tax system.

The World Bank report from 2023 states that the lowest 10% of people pay a larger percentage of their income in taxes than the richest 10%, both in monetary terms and about pretax incomes. The incidence of poverty neared 43%. In addition, the affluent and poor pay the same tax rate on goods and services, and the middle class’s decline from 42% to 33% is always at the expense of increasing indirect taxes and inflation (17.4%). More than 103 million people live below the poverty level at the moment because the existing tax structure is extremely regressive and unfairly impacts middle-class and lower-class individuals through ITs. The tax system is anti-growth, fragmented, and predatory.

Approximately 5% of feudal owners own 64% of the farmland, whilst 65% of small farmers own only 15%. Even if an elite’s average net worth exceeds USD 1 million, they only pay less than 1% of all taxes collected in income taxes. Regretfully, elites receive more than Rs 4 trillion (US$17.4 billion) in benefits and privileges each year. The amount of tax evasion is Rs 5.8 trillion, or 7% of GDP. While the expected value of the black market and smuggling of commodities remained at US$23 billion in 2023, the informal economy accounts for almost 40% of GDP[7].

The lack of confidence between the general public, tax administration, and legislators is the biggest obstacle to tax collection. It gets worse when the wealthy enjoy benefits and privileges worth more than Rs 4 trillion (US$17.4 billion) per year, while the middle and lower middle classes pay high indirect taxes to service their debts and over 60% to 70% of public revenue is used for debt servicing.

Tax-to-GDP Ratio

In FY2020, Pakistan’s tax-to-GDP ratio was 9.6%, which is incredibly low for a nation at this stage of development. This was predicted to rise to 10.9% in FY2021 or 4,963 billion PKR, according to the economic report. Though it’s hardly the end of the world, the FBR was only able to handle 4,734 billion PKR.  Over the next six to eight years, Finance Minister Shaukat Tarin instructed the FBR to aim for a 20 per cent tax-to-GDP ratio in Pakistan. Although it seems a bit too ambitious, estimates for a more cautious 15% tax-to-GDP ratio by 2029, adjusted for a 4% annual GDP growth rate, revealed that the total amount of taxes collected would be 9354.2 billion PKR, an additional 4,620 billion PKR.

The tax-to-GDP ratio is low, yet we are spending a lot of money on tax expenditures like concessions and waivers. There is no one voice advocating for tax course simplification that is accessible to all citizens in the military or even in democratic governments, and there is no debate on the use of tax courts to make tax rules simpler. Although there are enough mobile users, there is no information on their tax status. We are subjected to the culture of lenders and contributors, while all forms of relief, such as amnesty programs, are reserved for the wealthy.

Pakistani policymakers primarily employ tax policy to raise the tax-to-GDP ratio to encourage public investment and economic growth. The goals of employment and sustainable growth could not be met despite many attempts to change the tax code. This begs the crucial question of whether our tax laws encourage economic expansion.
We must determine the main problem with our tax system before attempting to alter it once more. Experts and groups have carried out several research to pinpoint these problems. Through several research projects, the Pakistan Institute of Development Economics (PIDE) has also contributed to the investigation of these topics.

Progressive taxation is always recommended; however, the majority of the money is wasted on pensions, defence spending (more than Rs. 1 trillion), debt servicing (more than Rs. 2500 billion), etc. The provinces receive 57% of the money, yet they are excluded and do not participate in the formulation of public policy. Agriculture income tax and non-agriculture income tax should be combined into a single location. Similarly, sales tax is divided into distinct categories for each province and centre. Taxpayers are hampered by all of these factors, particularly those who conduct business across jurisdictions.

Four pillars support the flat taxation proposal: first, it would reduce high rates to low rates; second, it would replace various fragmented taxes with a single flat tax; third, it would replace exemptions with broad-based taxation; and fourth, it would replace discretionary policies based on SROs with predictable policies. The proposal discusses a new tax code that consists of four main numbers: first, income tax on salaries, non-salaries, and partnerships should be raised to 10% universally with no exemptions; second, income tax for cooperatives should be raised to 20% from the previous 29–39%; third, a 5% single-stage sales taxation should be applied to all consumers at the final stage and returned to the state; and fourth, custom duty should be raised to 5% nationwide[8].

FBR Revenue Collection in Comparison to Goal for FY2023–2024
FY2023–24 will go down as a historic year because it saw federal tax revenue cross the Rs. 9 trillion threshold for the first time in Pakistani history, marking an unprecedented milestone.

As seen in Table 1, the updated goal was accomplished at 100.5%. Notably, a surplus of 121.8%, or Rs. 809.7 billion, was collected above the direct tax objective. With Rs. 9,299.1 billion collected in FY2023–24 compared to Rs. 7,163.8 billion in the preceding fiscal year (PFY), the FBR has experienced a robust growth of 29.8%. The addition of Rs. 2.1 trillion in a single year is an exceptional accomplishment in absolute terms. The Federal Excise Duty (FED) collection increased by 56.1%, followed by direct taxes at 38.5%, sales tax at 19.1%, and customs duty at 18.5%. These tax categories have all seen a notable rise. This performance is particularly noteworthy in light of the nation’s general economic downturn.

There is a noticeable increase in FBR’s revenue collection during H1 FY 2023-24 as compared to H1 FY 2022-23. All things considered, there has been a noticeable rise of 30.3% over the same time last year. These patterns demonstrate FBR’s strategic tax-collecting operations in the face of shifting economic dynamics and dynamic shifts in revenue generating.

According to the research[10], we can determine that in Pakistan, there are around 1.05 million active taxpayers or 0.07 per cent of the total population. About 1.2 million of the approximately 2.0 million people listed in the income tax department’s registries have been given national tax numbers. 1.4 per cent of the population is listed in the national tax register, compared to 2.2 per cent in India, 13.6 per cent in Argentina, 53 per cent in France, and 82.5 per cent in Canada. Due to significant variations in “the economic structures, tax laws, and administrative procedures,” cross-country comparisons are typically not helpful. In 1997, 18,000 enterprises filed taxes, accounting for 53% of the total tax income. Four hundred and ten thousand salaried taxpayers made up around seven per cent of the overall revenue. 359,000 taxpayers submitted returns under the self-assessment program.

Digitalisation

Today, it is not a far-off thought any more than the concept of digitalization has truly made its place in the taxation system of Pakistan too. The great strides made by the digitization of the tax administration have been noted to have a great role in maximizing tax revenue collection as well as improving compliance on the part of taxpayers. The implementation of digital technologies like e-registration, e-filing, and e-billing, has enabled taxpayers access to tax information and services to add to transparency and reduce opportunities for corruption, collusion, and nepotism.  Moreover, adoption of digital tools has played a key role in the success stories of some countries in modernizing their tax systems and increasing revenue generation.

Need for Digitalisation in Pakistan

The rapidly evolving digital landscape has profoundly impacted various spheres of our society, and Pakistan is no exception. The integration of digital technologies in the education sector has become a pressing need, as it offers numerous advantages for both teachers and students[11]. However, the literature suggests that Pakistan faces significant challenges in fully harnessing the potential of digital technologies in higher education.

Recent Developments in Digitalisation

The Federal Board of Revenue (FBR) has signed a deal with Karandaaz Pakistan for the Digitalization of Tax System in keeping with the Prime Minister of Pakistan’s goal of converting the FBR into a Digital Tax Administration.  A crucial first step in modernizing tax collection, increasing transparency, and boosting revenue growth is the digitization of the tax system.

FBR has focused heavily on digitizing the economy and automating its operations. These programs lower taxpayer compliance costs, record the economy, broaden the tax base, and guide FBR toward long-term revenue growth[12]. Taxpayers may simply complete their tax returns from the comfort of their homes or offices, and they can interact with FBR representatives online to submit requests for rectifications, appeals, and condonations. To get legal status, all of these reforms must follow certain legal procedures in line with Presidential directives, Circulars, and SROs.

FBR and Karandaaz will work together to create a complete digital strategy that will help FBR realize its digital transformation, as well as the implementation of its digitalization projects. By this agreement, FBR will receive assistance from Karandaaz Pakistan, an impact investment platform that promotes sustainable economic growth and fortifies financial and social protection systems for inclusion. This will help FBR assess business needs, current IT infrastructure and systems, and business processes to determine the scope and context for digitizing Pakistan’s tax system through service-oriented and taxpayer-centric use cases.
During the signing ceremony, FBR Chairman Mr Malik Amjed Zubair Tiwana said the agency has focused a lot of effort on automating its operations and digitizing the economy, particularly the supply chain. The problem of the undocumented economy and broadening the tax base has been addressed in several ways. FBR and Karandaaz will now work together to realize FBR’s digital transformation, as well as to implement its digitalization projects.

According to Mr Waqas ul Hasan, CEO of Karandaaz Pakistan, the project will support the development of a strong ecosystem for the Pakistan Digital Stack and is consistent with the Digital Public Infrastructure workstream of the Bill and Melinda Gates Foundation, which sponsors Karandaaz Pakistan. When the transition is over, the natural systems of the taxpayer will be at the core, and the tax administration will become more adaptable and robust. The benefits of this digital revolution will extend to the entire country. On March 15, 2024, the contract was signed. Mr Sharjeel Murtaza, Director of Digital Services, signed the agreement on behalf of Karandaaz Pakistan and FBR’s Member Mr Ardsher Salim Tariq.

Isn’t The Cost of Digitisation High?

Financial concerns and a lack of internal technological know-how limited the ability of Small and Medium Businesses (SMEs) to change not too long ago.
As a result, they were unable to digitise their companies. An organisation has to hire qualified IT personnel to run and maintain all of it after first purchasing computer servers and software. Furthermore, recurrent software upgrade expenses used to be uncertain. That’s all changed. Businesses no longer need to engage costly technical staff full-time or make any upfront capital expenditures. Broadband Internet enables access to the computer platforms of specialist service providers, where the application software packages are located[13].

Effectiveness of Digitalization in the Tax System

The Pakistani tax system underwent substantial transformations because of digitalization technologies. Through its digital initiatives, the Federal Board of Revenue (FBR) provides taxpayers with simpler options for filing and paying taxes using e-filing systems, e-payment portals, and online tax audit modules. Tax collection became more transparent when the Point-of-Sale (POS) system was integrated into retail businesses combined with Track-and-Trace systems in the sugar tobacco and beverage sectors.

Online tools cut down human contact with tax procedures which reduces errors and exposes fewer points for fraudulent practices. Tax authorities successfully use automation of standard tasks for enhanced compliance verification and tax evasion detection efforts. E-filing systems enable return submissions electronically beyond traditional tax office requirements thus delivering both monetary and time efficiency for government departments and individual taxpayers. The capability to collect data in real-time through digital monitoring tools detects unauthorized activities including deceptive invoicing and unsupportable sales.

Through digital platforms, the tax base of Pakistan expands because digital platforms reveal unregistered business operations that operate beyond tax obligations. Mobile payment networks associated with transactional analysis deliver data to tax authorities so they can identify individuals obligated to pay taxes. The country’s tax-to-GDP ratio which stands as one of the lowest in the region could improve through such recent measures.

Also See: Pakistan’s Economic Surge: Record Remittances, Panda Bond, and Key Investments

Effect of Digitalization on the Income Tax Target Statistics

According to the FBR yearly books, From 2010-11 to 2019-20 FBR documents show Income Tax Target results and Revenue Statistics including Tax Growth Rate and Tax Achievement Percentage alongside Tax Ratio Calculation and Tax Collection Breakdown. Across years FBR recorded a steady rise in tax money that started growing after digitizing how it collects income tax.

Tax revenues have kept growing since financial years 2010-11 up to 2019-20. During 2010-11 tax collected 1,587 billion Indian Rupees which grew to 3,999.7 billion by 2019-20. The enhanced tax administration methods let the country collect two times more taxes. Tax collection surged 22% in 2015-16 then stood at 16% during 2013-14 and 2014-15.

Impact of Digitalization on Tax Collection Growth

The results displayed unsteady growth rates during this period (3.0% from 2012-13 followed by 19.6% from 2010-11). Tax collection numbers evened out because our digital taxpayer support centres and online tax filing systems started working. The public followed tax rules better because it brought us more stable tax income results.

Tax-to-GDP Ratio Stability

Tax revenue accounted for similar portions of the overall economy over time and stayed within a narrow range between 8.5% and 9.8%. During tax reforms in 2016-17, the government collected taxes at an optimized level which produced a peak in tax revenue efficiency. The tax structure changed between direct and indirect collection methods. Consumption taxes generated larger amounts of revenue than direct taxes throughout this period. Over these ten years, indirect taxes increased from a 61.3% share in collection to a 67.9% share while direct taxes dropped from their initial 38.7% to 32.1% by 2019-20. Data shows consumers pay more in taxes through sales tax and import duties while income tax declines because some wealthy people may avoid their tax obligations.

Challenges in Digitalization Despite the Advancements

Inadequate Infrastructure and Communication Networks

Pakistan faces a critical challenge in its digital technology integration because it lacks a well-established infrastructure. The sparse infrastructure across rural spaces produces devastating gaps in communication networks and technological capabilities needed for electronic administration[14]. Hereditary infrastructure deficiencies create big participation gaps between digital tax systems and citizens as well as enterprises which try accessing these platforms. Basic infrastructure limitations constrain the efforts that would provide transparency and efficiency in tax collections and administrative operations which in turn disables broader digital initiatives.

Financial Constraints and Lack of Trained Personnel

Effective implementation of digital technologies faces major obstacles because of insufficient funding, particularly in educational institutions such as schools. Research findings show that a combination of untrained personnel together with outmoded digital platforms and weak management support networks act as barriers to using information and communication technologies within these professional environments. Faculty members at higher learning institutions in Pakistan report resistance to modern technological innovations because of expanding digital inequality[15]. The education of future instructors encounters obstacles from a lack of trainers outdated teaching tools and inadequate support resources. The problems affecting education also exist throughout initiatives focused on digital transformation including the tax sphere.

Resistance to Change

Many businesses along with tax officials show resistance toward embracing digital tools because they operate with established manual systems. Smaller enterprises specifically experience digital tax systems as challenging to use because they fear that more attention from authorities will lead to additional regulations. Tax officials who work in manual systems tend to oppose digital transformation because they fear their oversight responsibilities will expand when automation is implemented. The opposition against digital adoption creates delays that prevent the advancement of both digital adoption as well as administrative system modernization.

The revolutionary potential of digitalization for Pakistan’s tax system includes greater transparency and lower corruption with an expanded tax base. The effectiveness of digitalization is restricted by existing infrastructure problems as well as legal and administrative hurdles. For digitalization to reach its full potential Pakistan needs to invest resources into expanding infrastructure and unifying tax systems while training stakeholder capacities. Persistent political dedication together with continuous work will allow digital transformation to become an essential factor in tax system strengthening and economic balance for Pakistan.

Pakistan’s Budgetary Crisis and the Launch of TARP

Protracted budgetary strains affecting Pakistan have prevented defence operations and debt servicing using tax-based methods which blocked steady economic development. The Tax Administration Reforms Program (TARP) began under the Federal Board of Revenue (FBR) when the Government of Pakistan introduced it in 2005. The program established specific objectives to improve revenue collection while simultaneously driving up tax-to-GDP ratio performance growing tax base measurements and maintaining fair tax law enforcement.

Progress Achieved Through TARP (2005–2011)

By 2011 TARP managed to gain notable success even though facing challenging circumstances. Tax administration reforms through the Tax Administration Reforms Program (TARP) developed two branches for Large and Medium Taxpayer Units (LTUs and MTUs) alongside establishing Regional Tax Offices (RTOs) and introducing electronic customs operations. These administrative steps targeted shorter processing periods while advancing transparency and providing education to taxpayers alongside enhanced compliance assistance.

Role of Stakeholders and Financial Support in Reform Implementation

Reform implementation required extensive discussions between operators and donors together with representative groups of stakeholders including trade associations and donor agencies. The World Bank joined forces with the International Monetary Fund to deliver financial backing along with expert services to the initiative. The World Bank’s financial support enabled the development of fundamental pilot programs for sales tax administration including a Model Sales Tax House and the Dispute Resolution Complex along with added Local Tax Offices and enabled FBR employee coaching and taxpayer training initiatives.

Challenges and the Road Ahead for Tax Administration Reforms

Particularly successful though TARP had been the existing challenges persisted from inconsistent execution to resistant transformation and incomplete digital literacies. The future success demands better integration between federal and provincial tax systems along with improved cybersecurity and standard digital tool application across all platforms. To develop TARP at its current levels a persistent dedication coupled with detailed planning must exist to eliminate these present barriers.

Important Findings Across The World

Successful State Tax Reforms

Four states (UT, IN, NC, and DC) supply evidence of effective tax reforms. These governments accomplished tax makeover by discounting tax amounts plus expanding revenue sources and lessening tax terms which increased their economic performance. Their successful approach shows how strategic tax changes benefit taxpayers and public agencies step by step.

Gradual Implementation for Sustainable Reform

States show that tax reform works best when its implementation happens gradually over time. Indiana took five years to put its tax reforms in place helping maintain budget stability during the process. The state successfully balanced its budget each year because of this step-by-step approach which let them maintain basic public functions.

The Use of Tax Triggers Helps Maintain Government Finances Safely

North Carolina and Washington DC made tax cuts conditionally activate when their budgets reached approved revenue levels to sustain vital services. The government took a cautious approach to budgeting so no deficits formed to show people need to balance taxes with economic practicalities.

Estonia has the finest tax regime among OECD nations, ranking first for efficiency, simplicity, equality, and transparency (Tax Competitiveness Index, 2023). In 2020, Estonia had a tax-to-GDP ratio of 33%, whereas other OECD nations ranged from 18% to 47%, including Mexico and Denmark.
In industrialized countries, direct taxes (DTs) and indirect taxes (ITs) accounted for 59-62% and 32-35% of total tax income, respectively.

In Pakistan, the reality is the opposite, as DTs and ITs have fluctuated over decades between 18–46% and 54–82% of total tax collection. With the assistance of 37 tax-collecting organisations, more than 70 different tax kinds were collected using a sophisticated tax system. Tax composition was always the result of ITs. In recent years, the percentage of ITs, which includes income withholding taxes, has stayed at its highest point of 82%.

Kansas: A Case of Unsuccessful Reform

Kansas shows how tax reform fails next to states that achieved successful changes. When the state cut taxes, it failed to match the move by also lowering government expenses so its money problems quickly grew worse. The pass-through exemption policy Kansas introduced restricted who paid taxes resulting in substantial problems for the state budget. Our example shows why tax reductions become ineffective when they lack preparation and long-term planning.

These case reviews show that effective tax reform requires governments to move toward targeted changes that enhance budget stability alongside nationwide expansion.

Recommendations for Tax Reforms in Pakistan

Despite its problems, Pakistan must tackle income tax issues, both in terms of tax evasion and its limited collection base. Digital updates and robust leakage management are needed to make the tax system collect more money and work fairly. A set of reforms shows how to improve Pakistan’s tax system.

 A straightforward, effective, egalitarian, transparent, digitalized tax system with open administration is the only way to rebuild the trust gap. Therefore, taxing the 2% of untaxed elites who hold 95% of the nation’s resources is the key to closing the trust deficit rather than hitting the tax objective. Including the 3.5 million ultra-rich people in the tax system might increase Pakistan’s tax-to-GDP ratio to 20% of GDP. It is indeed challenging, but not insurmountable. Only effective tax changes and political will be able to do this[16].

Give communities the authority to levy taxes. Approximately 38% of Pakistanis reside in urban areas, however, they account for over 55% of the country’s GDP. This implies that there is additional income potential if Pakistan efficiently oversees the tax collection in these cities.

Currently, one of Pakistan’s four province governments is in charge of enforcing the majority of urban taxes; smaller urban administrations lack financial authority. With populations ranging from 12 million to over 110 million, these provinces have significant domains. The majority of these governments have not created efficient urban administration systems as administering cities is not their primary duty.

According to the IGC’s Cities that Work initiative’s collection of studies, land and physical properties represent a significant untapped cash stream for the majority of cities in developing nations. For instance, Punjab only earned Rs. 10 billion, or around 6% of its total tax income, from property taxes, while having nine cities with a combined population of over a million. The situation has not improved in other regions of Pakistan. The largest city in Pakistan, Karachi, is located in Sindh, which has not had its land and property values reevaluated since 2001.

However, there is a lot of room to raise this. For instance, according to an IGC (2011)[17] estimate, Punjab could increase property taxes by Rs 25 billion if it implemented full reforms.

The national government must build modern information systems to unite all tax functions. We need to build a digital system for tax users to submit documents and make payments through our web platform. Moving tax functions to digital tools increases how much people see what is happening and makes it harder for dishonest people to take advantage.

Controlled use of data analysis tools helps find tax reporting errors and traces tax fraud. By using advanced analysis tools, the Federal Board of Revenue must examine business tax compliance across all sectors but especially the beverage industry which shows major sales tax variation.

Public Disclosure of Tax Information: When tax department information becomes more open to the public it builds community faith in government. Protecting taxpayers’ trust requires FBR to release complete reports on tax payments, public funds use and tax effects on public services. The FBR must enlarge its tax audit service to protect tax regulations better. The organization trains its auditors to use computer technology to check taxpayer actions which decreases tax violations.

Tax Reforms in Pakistan: Pathways to Economic Stability and Growth

The taxation system of Pakistan is sizable and contains subcategories of direct and indirect taxation forms. Despite progressive measures being enacted from time to time as steps towards enhancing efficiency and compliance, there have been problems with the entity living within a small tax base and relying on indirect taxes. To this effect, the government persists in continuing efforts to improve

this system and to beef up this support of economic development.

Pakistan’s tax system has several issues that impede the nation’s economic growth. Lack of home resources has put the economy in a terrible situation, and without significant measures to enhance domestic resource mobilisation, there are little signs of recovery. The aforementioned suggestions can help Pakistan move towards inclusive and sustainable growth. Although the budget for 2022–2023 has made some positive strides (as previously indicated), there is still an opportunity for significant improvement in a few key areas.

Reforming taxes is crucial to maximising Pakistan’s economic potential. Pakistan can guarantee sustainable revenue collection, encourage economic progress, and lessen inequality by establishing a more fair, effective, and transparent taxation system. Although there are many obstacles in the way of change, there might be enormous advantages for Pakistan’s economy and citizens. To clear the path for a rich and just future, action must be taken now. The author of this piece is Radma Nouman. Radma works at the Iqbal Institute of Policy Studies (IIPS) as a research analyst.

Pakistan must begin preparing for the future of the digital economy as well. Regarding cyber security, Pakistan is among the 10% of nations that lack the required laws for privacy and data protection, while 57% of nations have such laws. The UN Conference on Trade and Development’s (UNCTAD) November 2017 Report included this information.

Pakistani government’s 2024 tax changes are courageous measures aimed at resolving the country’s economic crisis and achieving financial stability. However, there is a limit that must be drawn where the execution of these policies, despite their purported revenue-raising goal of helping the core industries, may encounter very significant compliance and economic justice issues. Therefore, the ability of the government to handle those issues while maintaining a balanced approach to social welfare and economic discipline is even more crucial to the success of such changes.

The views expressed in this article are the author’s own. They do not necessarily reflect the editorial policy of the South Asia Times.

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[12] FBR. (2024). FBR Signs Agreement with Karandaaz Pakistan for Digitization of Tax System. Federal Board Of Revenue Government Of Pakistan. Fbr.gov.pk. https://www.fbr.gov.pk/fbr-signs-agreement-with-karandaaz-pakistan-for-digitization-of-tax-system/174032

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[15] Gayyur, T. S. (2021). Exploring TPACK Skills of Prospective Teachers and Challenges Faced in Digital Technology Integration in Pakistan. Journal of Development and Social Sciences, 2(IV), 226–241. https://doi.org/10.47205/jdss.2021(2-iv)19

[16] Sattar, A. (2024). Taxation in Pakistan: Taxing the Untaxed Elites. https://file.pide.org.pk/pdfpideinpress/pip-taxation-in-pakistan-taxing-the-untaxed-elites.pdf

[17] Nabi, I. (2011). “Reforming the Urban Property Tax in Pakistan’s Punjab.” IGC Policy Brief.