Pakistan’s Taxation Problem
Pakistan has a narrow tax base, with only 3.5 million active taxpayers in a population of 240 million. The tax-to-GDP ratio has stagnated at 9-10%, significantly below the regional average of 15-18%.
Key Challenges
- Tax Evasion: The informal economy accounts for 35% of GDP, evading taxation.
- Over-Reliance on Indirect Taxes: 65% of total tax revenue comes from GST, customs duties, and excise taxes, burdening the poor.
- Low Agricultural and Real Estate Taxation: Agriculture contributes 19% of GDP but only 0.1% of total taxes.
Reform Agenda
- Expanding the Tax Base: Mandatory CNIC-based invoicing can document the undocumented economy.
- Simplifying Tax Filing: A one-window digital tax system can improve compliance.
- Shifting Towards Direct Taxation: Gradually reducing sales tax and increasing income tax will create a fairer system.
Without meaningful reforms, Pakistan will continue to struggle with chronic revenue shortfalls and fiscal crises.
