Shocking Revelation: Pakistan’s Top 5% Evade Taxes Worth Rs. 1.6 Trillion
Tax evasion has long plagued Pakistan’s economy, with the top 5 percent of earners contributing disproportionately to the widening fiscal deficit. In a recent press conference, Chairman of the Federal Board of Revenue (FBR), Rashid Mahmood Langrial, and Finance Minister Muhammad Aurangzeb highlighted the staggering tax gap and shared insights into ongoing reforms aimed at addressing this issue.
Tax Evasion: A Closer Look
The top 5 percent of Pakistan’s earners—approximately 3.3 million individuals—have evaded Rs. 1.6 trillion in taxes. Despite their significant incomes, only 600,000 of these high earners are registered tax filers. The broader implications of this non-compliance are clear: the national tax gap has grown to Rs. 7.1 trillion for the current fiscal year, up from Rs. 6.2 trillion last year.
Key Figures Highlighted by FBR:
The average annual income of 670,000 individuals in this group is Rs. 13.2 million.
Another 3.3 million individuals report an average annual income of Rs. 4.8 million.
These numbers underscore the critical need for better tax compliance mechanisms, as this affluent segment alone accounts for a substantial share of the country’s fiscal shortfall.
Reform Measures and Policy Changes
Finance Minister Muhammad Aurangzeb emphasized the government’s commitment to enhancing revenue generation through systematic reforms. Among the key initiatives discussed were:
Reduction in GST Rates: Langrial hinted at the possibility of lowering the General Sales Tax (GST) rate to 10-12 percent in the coming years. This aligns with broader economic reforms designed to create a fair and efficient tax system.
Digital Transformation of the FBR: Steps are being taken to digitize the FBR’s systems, with the aim of improving tax collection and compliance. The digitization phase is reportedly underway, marking a significant move towards modernization.
Increasing Tax Compliance: Finance Minister Aurangzeb set an ambitious goal of increasing the tax-to-GDP ratio to 13 percent. This target is crucial for achieving fiscal sustainability and meeting developmental needs.
Encouraging Signs of Progress
Despite the challenges, there are signs of improvement in tax compliance. According to Minister of State for Finance Ali Pervaiz Malik:
Tax return filings have increased from 3 million in 2023 to 5 million by October 2024.
Non-filers identified owe an estimated Rs. 50-60 billion in taxes.
The Road Ahead
While the government’s reform agenda shows promise, addressing Pakistan’s tax challenges requires more than policy changes. Efforts to:
Build trust in the tax system,
Strengthen enforcement mechanisms, and
Promote awareness among taxpayers are essential for ensuring sustainable economic growth.
Moreover, collaboration between federal and provincial governments is vital to eliminate loopholes and streamline tax collection. As Pakistan works towards fiscal stability, tackling tax evasion by the wealthiest segment of society remains a cornerstone of its economic strategy.
Conclusion
Pakistan’s struggle with tax evasion highlights a critical bottleneck in its journey towards economic reform and fiscal sustainability. While the top 5 percent of earners have evaded massive sums, the government’s efforts to digitize tax systems and improve compliance offer a pathway to recovery. However, sustained commitment and effective implementation will determine the success of these initiatives in bridging the tax gap and ensuring equitable growth.