Imagine a city where the streets are paved, hospitals well-equipped, children attend quality public schools, and clean water flows reliably through every tap. The parks are green, security is efficient, and digital public services run like clockwork. This is not just a fantasy—it’s the promise of effective statehood, a promise that hinges on one powerful engine, taxation.
Taxes are not a burden; they are the subscription fee to a functioning society. They pay for defense, justice, infrastructure, and the safety net for the most vulnerable. In countries that have advanced the furthest in providing public goods—think Scandinavia, Singapore, or Canada—the common thread is a strong, efficient, and fair taxation system. Without revenue, governments are like ships without sails: directionless, drifting, and ultimately dysfunctional.
But how do we make this ideal real—especially in a developing economy like Pakistan’s, where public trust in tax systems is often fragile and enforcement historically weak?
The Tax Aversion in Pakistan: A Cultural and Structural Challenge
In Pakistan, the concept of taxation is often viewed with suspicion and resentment. Scroll through social media, and you will find influencers proudly declaring they have never filed a tax return, business owners joking about how to “save tax,” when they actually mean evading tax, and memes that glorify tax evasion as an act of rebellion against a system deemed broken.
And there is some truth to this mistrust. A bulk of the salaried class is discontent over exorbitant taxes that they have to pay in lieu of the manufacturing and retail businesses that do not pay their fair share. It then becomes an egg and chicken problem, wherein the people do not want to pay taxes because they do not get necessary public goods for their given taxes and the government cannot efficiently provide taxes if they do not have enough revenue.
This distrust also has historical roots. Decades of weak governance, poor service delivery, and perceived elite capture have convinced many that taxes disappear into a black hole of corruption rather than re-emerge as public good. As a result, around 5 million people—out of a population exceeding 240 million—file their income tax returns. That’s less than 2% of the population. Whereas, the majority of the population prefers not filing tax returns, or misappropriating their cumulative income to evade taxes.
Such a narrow tax base doesn’t just hurt government revenue—it fractures society.
The Consequences of Low Tax Collection
When a country fails to collect taxes effectively, several ripple effects emerge:
- Over-reliance on Indirect Taxes: Instead of taxing income, the government ends up taxing consumption through GST and customs duties—placing a disproportionate burden on the poor who spend most of their earnings on essentials.
- Public Goods Suffer: Health, education, water, and transport remain underfunded, forcing citizens to seek expensive private alternatives or go without altogether.
Source: Dawn news
- Debt Dependency: With weak domestic revenue, Pakistan borrows—often from abroad—to meet its expenses, creating long-term debt sustainability issues. In addition to the strict austerity measures imposed by the IMF.
Source: Brecorder
- Investor Confidence Falters: An unpredictable tax regime with arbitrary exemptions and poor enforcement scares away serious foreign and local investors. Correspondingly, the stock market also suffers, reflecting poor investor confidence.
- Undermining Equity: Those who pay taxes feel cheated, while free riders flourish, eroding the moral fabric of tax compliance, and reinforcing detrimental and illegal practice of, tax evasion.
FBR’s Reforms: What Has Been Done So Far?
Over the past three years, the Federal Board of Revenue (FBR) has initiated wide-ranging reforms to reverse this tide—and evidence suggests that it is beginning to pay off.
1. Digitalization and Automation
The FBR has significantly modernized its tax collection infrastructure. With the launch of the Track and Trace System for sugar, tobacco, cement, and fertiliser sectors, real-time data now allows for better monitoring of production and sales—two areas where evasion was rampant. Additionally, integration of Point of Sale (POS) terminals with the FBR system has allowed authorities to monitor sales in real time at major retail outlets.
2. Broadening the Tax Net
FBR has made use of data analytics, NADRA databases, and banking records to identify individuals who live well above their declared income levels. Using AI-driven profiling, the board has issued notices to over 2 million non-filers in the last two years, with considerable success in onboarding new taxpayers.
3. Minimum Tax Compliance on Digital Platforms
Acknowledging the rise of the digital economy, FBR has begun targeting e-commerce transactions—particularly those on platforms like Daraz, Foodpanda, and freelancing websites—to bring these into the tax net. This has helped tap into a growing but largely unregulated market.
4. Automation in Customs and RMS
The introduction of an AI-based Risk Management System (RMS) in customs clearance has reduced human intervention and the risk of corruption. Over 92% improvement was observed during initial testing phases. This not only accelerates trade but minimizes revenue leakages at the border.
5. One-Window Portal for Taxpayers
The Tajir Dost Scheme, launched in 2024, aims to integrate small traders into the tax system through simplified processes and fixed rates. The scheme uses geo-tagging and NADRA records to identify shops and outlets, ensuring greater documentation of the informal sector.
What Still Needs to Be Done?
While the reforms are commendable, there is still much ground to cover:
1. Rebuilding Public Trust
Transparency must be central. People will pay taxes if they believe the funds are used wisely. The FBR and Ministry of Finance must regularly publish expenditure audits, project progress, and the tangible benefits of tax money to shift public sentiment.
2. Simplify Filing for All
Tax filing must be intuitive, especially for salaried individuals, freelancers, and micro businesses. A mobile-first tax portal, available in Urdu and regional languages, would go a long way.
3. Reduce Overlapping Jurisdictions
Disputes between provincial and federal tax authorities over sales tax collection—especially on services—need a lasting resolution. A harmonized sales tax regime could boost compliance and make it easier for businesses to operate across provinces.
4. Eliminate Arbitrary Exemptions
Pakistan’s tax code is littered with SROs and special exemptions, often for politically connected sectors. Leveling the playing field will not only enhance revenue but restore fairness.
5. Make High-Profile Evasion Public
Cases of tax evasion involving celebrities, landlords, and corporate players should be prosecuted and publicized—not for vengeance, but for deterrence. Naming and shaming is a powerful behavioral tool.
6. Reward Compliance
Taxpayers who consistently file and contribute should receive recognition—via discounts, priority public services, or even ‘Taxpayer Cards’ granting symbolic status. Pride in compliance must be cultivated.
Conclusion: A New Tax Culture for a New Pakistan
The journey to reform Pakistan’s taxation system is not just about revenue—it’s about citizenship. Paying taxes must be seen as a badge of honor, not a burden. It reflects shared responsibility and a belief in collective progress.
FBR, under its recent leadership, has made meaningful strides in technology, enforcement, and outreach. But more than policy, what’s needed now is a cultural shift—a realization that public services, national development, and social justice are paid for not by foreign loans, but by our own contributions.
As digital systems tighten and data begins to drive governance, tax evasion will become harder to sustain. The government’s reforms show it is serious. Now, it’s up to the citizenry to match that seriousness with honest declarations.
For in the end, a strong nation isn’t built in silence—it’s built with receipts.
