ISLAMABAD – The federal government’s failure to expand its tax net and curb tax evasion has resulted in a decline in the tax-to-GDP ratio, which dropped to 8.77% during the fiscal year 2023-24.
In 2021-22, Pakistan’s tax-t-GDP ratio was 9.22%.
This alarming decrease highlights the growing financial strain on Pakistan’s economy, with experts warning that continued reliance on the salaried class to meet revenue targets is unsustainable.
If untaxed sectors such as real estate, wholesale, retail, and agriculture are not brought into the tax net, the government will be forced to impose additional burdens on salaried individuals.
According to a report, Pakistan suffers an annual revenue loss of PKR 950 billion due to tax evasion and illicit trade in five major sectors.
The government introduced a track-and-trace system to digitally monitor production and sales in key industries to address tax leakages. However, years of delays and poor planning have rendered the initiative largely ineffective.
Experts believe that effective enforcement of such measures, coupled with stringent action against tax-evading manufacturers, is essential to bridging the massive revenue gaps.
Achieving a tax-to-GDP ratio of at least 15%—the threshold considered vital for economic growth and poverty reduction by the World Bank—requires Pakistan to expand its tax base and enforce stricter penalties for evasion.
Currently, the country’s heavy reliance on a narrow tax pool hampers progress, while illicit trade thrives due to weak regulatory mechanisms.
“There is a need to curb tax evasion and illegal trade rather than increasing the financial burden on the salaried class”, said Osama Siddiqui, a macroeconomic analyst. He added that this approach would ensure fairer taxation and enable the government to meet its revenue targets without putting undue burden on ordinary citizens.
“Expanding the tax net to untapped sectors, improving enforcement mechanisms, and effectively implementing digital monitoring systems like the track-and-trace initiative are steps in the right direction”, he said, adding that growing economic costs of tax evasion and illicit trade call for immediate action. “Without decisive action, Pakistan’s fiscal challenges are likely to worsen, further jeopardizing economic stability and growth”, he added.
