Despite claims of record tax filings and an improved tax-to-GDP ratio, Pakistan’s taxation system continues to be riddled with deep structural flaws from fake filings to unfair burdens on salaried citizens, casting doubt on the government’s fiscal progress.
Pakistan’s tax-to-GDP ratio for FY 2024–25 rose to 15.7%, marking a 3.2% increase from the previous year. Yet, economists argue that the apparent progress is largely superficial. Chronic issues such as mass tax evasion, bogus filings, and the over-taxation of the salaried class continue to plague the system.
The Federal Board of Revenue (FBR) announced that 5.9 million income tax returns were filed by October 31, 2025, a 17.6% increase over the previous year. However, nearly one-third of these were zero returns, indicating no taxable income and raising questions about the credibility of Pakistan’s claimed tax growth.
PIAF Senior Vice Chairman Mudassar Masood Chaudhry criticised the FBR’s obsession with statistics, saying that many individuals file zero returns only to stay on the Active Taxpayer List (ATL) to avoid higher banking taxes and penalties. “Pakistan has formalised names, not the economy,” he said, calling the country’s tax progress an illusion rather than reform.
Unfair Burden On Salaried Class
The current tax burden is heavily skewed against salaried workers, the most transparent income group. In FY25 alone, they contributed approximately PKR 555 billion, nearly double the combined tax contribution of retailers and the real estate sector.
Although direct tax collections rose 12% in Q1 FY26, most of it came through withholding and advance taxes rather than genuine assessments of business profits. This reflects a dependence on easy-to-collect taxes while avoiding structural reforms that would hold the wealthier and informal sectors accountable.
Tax analyst Ali Niaz Khan told media that Pakistan’s so-called tax expansion is “superficial.” He argued that true reform lies not in the number of returns filed but in bringing wealthy individuals, informal traders, and unregistered businesses into the tax net.
Pakistan’s tax base remains narrow, undermined by inconsistent policies and excessive exemptions. The 2025 Economic Survey revealed that tax exemptions worth $21 billion annually are extended to various sectors a measure intended to spur growth but instead draining public revenue.
Meanwhile, the vast informal economy continues to escape taxation, with weak enforcement, slow documentation, and ineffective audits allowing discrepancies between income and wealth to widen.
Experts warn that unless Pakistan eliminates unjustified exemptions, strengthens audits, and enforces tax laws equitably, the current so-called “tax boom” will remain nothing more than a statistical illusion rather than genuine reform.
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