Pakistan's Tax Revenue Remains Elusive Despite Rise in Return Filers

The Auditor General of Pakistan has released a report highlighting a disconnect between the surge in income tax return filers and the actual increase in tax revenue, with the latter limited to just 30 percent in 2024 compared to a 76 percent increase in return filers. The report attributes this discrepancy to individuals filing returns to avail reduced tax rates without paying meaningful taxes. The Broadening of Tax Base wing of the Federal Board of Revenue has been scrutinized for its inability to translate the increase in tax filers into a proportional rise in revenue. Most new filers seem to be entering the tax system for procedural benefits rather than fulfilling real tax obligations. The tax-to-GDP ratio has also fallen from 10.6 percent in 2016-17 to 8.7 percent in 2023-24, despite the availability of extensive third-party data with the FBR. The report highlights disturbing trends in tax evasion and non-compliance, including the non-registration of 1,807 individuals with industrial electricity connections, failure to ensure tax return filing by 702 holders of industrial electricity connections and 992 gas connection holders, and no registration or return filing by 744 individuals owning motor vehicles above 1500cc engine capacity.

Key Takeaways:

• The Auditor General of Pakistan's report reveals a disconnect between the surge in income tax return filers and the actual increase in tax revenue, with the latter limited to just 30 percent in 2024.
• The report attributes the discrepancy to individuals filing returns to avail reduced tax rates without paying meaningful taxes.
• Most new filers seem to be entering the tax system for procedural benefits rather than fulfilling real tax obligations.
• The tax-to-GDP ratio has fallen from 10.6 percent in 2016-17 to 8.7 percent in 2023-24, despite the availability of extensive third-party data with the FBR.
• Serious shortcomings flagged in the 2016-17 special audit report remain unresolved, including non-registration of 1,807 individuals with industrial electricity connections and failure to ensure tax return filing by 702 holders of industrial electricity connections.
• The FBR's Broadening of Tax Base wing has been criticized for its inability to translate the increase in tax filers into a proportional rise in revenue.
• The Departmental Accounts Committee instructed the department to submit a comprehensive response and have its claims verified by the Audit within 15 days, but no update was shared before the finalisation of the report.
• The AGP has recommended urgent steps, including compulsory registration of potential taxpayers using data from utility connections, vehicle registration, and foreign travel records.

Statistics:

• 5.215 million income tax return filers in 2024, a 76 percent surge from 2.959 million in 2023.
• 30 percent increase in tax revenue in 2024 compared to the previous year.
• 10.6 percent tax-to-GDP ratio in 2016-17, compared to 8.7 percent in 2023-24.
• 1,807 individuals with industrial electricity connections not registered under the Sales Tax Law.
• 702 holders of industrial electricity connections who failed to file tax returns.
• 992 gas connection holders who failed to file tax returns.
• 744 individuals owning motor vehicles above 1500cc engine capacity not registered or filing returns.

Sources:

• "Pakistan's Tax Revenue Remains Elusive Despite Rise in Return Filers" by AFP, Islamabad, Date not specified.
• Auditor General of Pakistan report, Date not specified.
• Auditor General of Pakistan special audit report (2016-17).
• Federal Board of Revenue (FBR) Broadening of Tax Base wing report, Date not specified.
• Departmental Accounts Committee meeting minutes (January 2025).
• Nadra, motor and property registrars, and other withholding agents data, Date not specified.