(Publish from Houston Texas USA)
(By: Zafar Chishti)
The failure to expand Pakistan’s tax net has remained one of the most persistent and damaging weaknesses of the country’s economic system, despite repeated commitments by successive governments, international lenders, and policy planners, because this failure is not rooted in a single flaw but in a deeply entrenched structural, political, and social crisis that has evolved over decades, the foremost reason being the collapse of trust between the state and the citizen.
As the average Pakistani taxpayer sees little connection between the taxes paid and the quality of public services received, with education, healthcare, clean drinking water, security, and justice either inadequate or inaccessible, creating a perception that taxes do not fund national development but instead disappear into corruption, inefficiency, and elite privilege, turning taxation into a symbol of exploitation rather than citizenship, another major reason lies in the systematic tax evasion by powerful segments of society, where large landowners, influential industrialists, real estate investors, wholesalers, retailers, and politically connected business groups either remain outside the tax net or grossly underreport their income, while agricultural income, despite contributing significantly to wealth accumulation, largely escapes effective taxation, creating a glaring imbalance where salaried individuals are taxed at source while high-income elites contribute little, thereby destroying the moral foundation of the tax system.
The complexity of Pakistan’s tax laws further discourages compliance, as frequent policy changes, ambiguous regulations, complicated filing procedures, and fear-inducing notices make it extremely difficult for ordinary citizens and small businesses to understand or willingly enter the tax net, turning tax filing into a technical and psychological burden rather than a routine civic duty, this problem is aggravated by the institutional culture of the Federal Board of Revenue, which is widely perceived not as a facilitative body but as a coercive authority associated with harassment, discretionary powers, rent-seeking, and corruption, resulting in a hostile relationship between tax officials and taxpayers that incentivizes avoidance rather than voluntary compliance, the dominance of the undocumented economy is another critical factor, as a large portion of Pakistan’s economic activity operates in cash, outside formal banking channels, without invoices, receipts, or transparent records, particularly in real estate, retail trade, transport, and informal services, making it nearly impossible to accurately assess income or enforce taxation.
While repeated claims of digitization remain weak, fragmented, and poorly enforced, political constraints also play a decisive role in this failure, as governments are reluctant to antagonize influential trader groups, landlords, and business lobbies due to electoral considerations, leading to repeated retreats in the face of strikes, protests, and political pressure, thereby sacrificing long-term fiscal reform for short-term political survival, the tax structure itself is inherently unjust, relying heavily on indirect taxes such as sales tax, fuel levies, electricity surcharges, and customs duties, which disproportionately burden the poor and middle class while allowing wealthier individuals to remain largely untouched, creating public resentment and reinforcing the belief that taxation is punitive rather than equitable, federal-provincial coordination failures have further weakened tax expansion efforts, particularly after the Eighteenth Amendment, which transferred significant taxation powers to the provinces without ensuring adequate administrative capacity or political will, resulting in fragmented authority, blame-shifting, and revenue leakages.
While public awareness about taxation remains extremely limited, as the concept of tax as a civic responsibility is neither taught systematically in educational institutions nor promoted effectively through media or state campaigns, leaving citizens unaware of how taxes are calculated, collected, or utilized, repeated tax amnesty schemes have also inflicted long-term damage on the tax culture by rewarding evaders and undermining honest taxpayers, sending a clear signal that compliance is optional and dishonesty will eventually be forgiven at a nominal cost, thereby institutionalizing moral hazard within the fiscal system, weak data integration further cripples enforcement, as databases of banks, utility companies, property registries, vehicle authorities, and identity records are either poorly linked or selectively used, allowing influential tax evaders to remain invisible while smaller taxpayers face disproportionate scrutiny, the slow and inconsistent judicial process adds another layer of dysfunction, as tax disputes remain unresolved for years due to stay orders and legal loopholes exploited by powerful defaulters, while smaller businesses and individuals lack the resources to contest aggressive assessments, leading to unequal application of the law.
The external pressure from international financial institutions has also contributed to policy distortion, as governments under IMF programs often focus on increasing tax rates and indirect levies to meet short-term revenue targets rather than undertaking politically difficult structural reforms to broaden the tax base, resulting in inflation, economic slowdown, and public backlash without meaningful expansion of the tax net, the absence of continuity in tax reform policies has further undermined progress, as each incoming government abandons previous initiatives and introduces new, often cosmetic measures, preventing the development of a long-term, institutionalized taxation strategy, and until the state demonstrates seriousness by taxing elites without exception, documenting major sectors of the economy, simplifying tax laws, transforming the tax authority into a service-oriented institution, reducing reliance on indirect taxation, strengthening data integration, and visibly linking tax revenues to improved public services, the expansion of Pakistan’s tax net will remain a rhetorical promise rather than an achievable reality, ensuring that every budget cycle revives the same unanswered question of why tax reforms continue to fail in a country where the burden of taxation falls on the few while the majority remain outside the system.
