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Income tax

Discrepancy in Tax Revenue Growth in Pakistan

Strategic Insights

— 2 min read

Pakistan's tax revenue growth has seen a significant decline despite an increase in the number of income tax return filers in the tax year 2024. The Auditor General of Pakistan's (AGP) report reveals a 76% jump in the number of filers but only a 30% growth in tax revenue. The country's tax-to-GDP ratio has dropped to 8.7% from 10.6% in 2016-17, highlighting a stark contradiction. According to the AGP, many individuals are filing returns primarily to benefit from reduced tax rates on transactions like property and vehicle sales, without paying any meaningful taxes.

Key Takeaways:

  • The number of tax filers increased from 2.959 million in 2023 to 5.215 million in 2024, a 76% increase, but tax revenue grew by only 30%.
  • The tax-to-GDP ratio dropped to 8.7% from 10.6% in 2016-17, indicating a significant decrease in tax revenue as a percentage of the country's GDP.
  • Many new tax filers are entering the tax system primarily for procedural benefits, rather than fulfilling actual tax obligations.
  • The Auditor General's report notes that despite extensive third-party data available to the Federal Board of Revenue (FBR), many high-income individuals continue to file nil returns and contribute no taxes.
  • Issues flagged in the 2016-17 special audit report, including non-registration of industrial electricity connection holders and failure to ensure tax return filing by vehicle owners, remain unresolved.
  • The report recommends mandatory registration of potential taxpayers using utility, vehicle registration, and foreign travel data; granting auditors access to key data portals; and strengthening collaboration with Nadra, motor and property registrars, and other withholding agents to ensure better compliance.
  • The Departmental Accounts Committee (DAC) had instructed the FBR to submit a detailed update by January 2025, but no such update was received before the report's completion.

Statistics:

  • 76% increase in the number of tax filers from 2023 to 2024
  • 30% growth in tax revenue from 2023 to 2024
  • 8.7% tax-to-GDP ratio in 2024, down from 10.6% in 2016-17
  • 1,807 individuals with industrial electricity connections without registration
  • 702 industrial electricity connection holders failed to file tax returns
  • 992 gas connection holders failed to ensure tax return filing
  • 744 individuals owning motor vehicles above 1500cc without registration or filing
  • No progress in addressing issues flagged in the 2016-17 special audit report

Sources:

  • Auditor General of Pakistan's (AGP) report (exact source not specified)
  • Federal Board of Revenue (FBR) documents and reports (exact source not specified)
  • Departmental Accounts Committee (DAC) instructions and updates (exact source not specified)

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