Pakistan's "fake tax boom" exposed as system remains broken

Lahore [Pakistan], November 6 : Despite Pakistan boasting higher tax filing numbers and an improved tax-to-GDP ratio, the country's taxation framework remains fundamentally weak, deceptive, and ineffective.

As reported by The Express Tribune, although the tax-to-GDP ratio for FY 2024-25 touched 15.7%, a 3.2% rise from the previous year, experts argue the so-called progress masks chronic flaws such as mass tax evasion, bogus filings, and continued exploitation of the compliant salaried class.

According to The Express Tribune, the Federal Board of Revenue (FBR) claims that income tax returns reached 5.9 million by October 31, 2025, a 17.6% jump. Yet, nearly one-third of these submissions are zero returns, revealing no taxable income.

Analysts told The Express Tribune this reflects a numbers-over-substance mindset. PIAF Senior Vice Chairman Mudassar Masood Chaudhry criticised the FBR's obsession with return quantity, saying many people file zero returns only to stay on the Active Taxpayer List to avoid higher banking taxes and penalties, not to contribute to national revenue. He stressed that Pakistan has formalised "names, not the economy."

The tax burden remains heavily tilted against the most transparent income group. Salaried workers paid roughly PKR 555 billion in FY25, almost twice the combined tax contribution of retailers and the real estate sector. Although direct taxes rose 12% in Q1 FY26, most collections stemmed from withholding and advance taxes, not genuine assessments of business profits.

Tax expert Ali Niaz Khan told The Express Tribune that Pakistan's tax net expansion is superficial, arguing that real success lies not in counting filers but in bringing wealthy individuals, informal sector players, and unregistered businesses into genuine taxation.

Pakistan's system remains narrow due to inconsistent policies and excessive exemptions. The 2025 Economic Survey revealed $21 billion in annual tax exemptions meant to incentivise sectors but instead weakening the revenue base.

Meanwhile, vast informal economic activity continues untaxed, with weak enforcement, slow documentation, and ineffective audits allowing income-wealth discrepancies to flourish.

Experts insist Pakistan must prioritise genuine taxpayer compliance, eliminate unjustified exemptions, enhance audits, and ensure equitable enforcement, or risk its so-called tax expansion collapsing into another statistical illusion.

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