Pakistan's tax machinery fails as elites enjoy wealth, pay nothing

Islamabad [Pakistan] September 28 (ANI): Pakistan’s top tax authorities have expressed alarm over the widening gap between declared incomes and the extravagant lifestyles of many citizens, highlighting how the existing system fails to reflect the nation’s true wealth. Around half of the 5.9 million income tax returns filed for the year 2024 showed zero income, despite many of these taxpayers living in luxury, as reported by Dawn.

According to Dawn, the trend appears to be continuing in 2025, with more than 40 per cent of returns submitted by September 27 declaring nil income. Officials point out that people are living in palatial homes, driving expensive cars, shopping for branded goods, and travelling abroad frequently, yet their tax declarations do not match these lifestyles. An internal review cited that the current declarations are far from an accurate reflection of real earnings.

Pakistan’s Federal Board of Revenue (FBR) acknowledges that the universal self-assessment scheme, under which taxpayer declarations are accepted without routine checks, has been widely exploited. Officials argue that the effectiveness of such a system depends on strong deterrent audits, third-party data, and a digitised economic framework, all of which remain underdeveloped.

To address these loopholes, the FBR is seeking to revamp its whistleblower programme. At present, informants can claim up to Rs 5 million, but the board is proposing to increase this ceiling to Rs 150 million, distributed on a graded scale. Officials suggest relying on extended families, neighbours, colleagues, and even domestic staff who often have knowledge of undeclared wealth. Advanced economies have successfully adopted similar models, combining strong secrecy protections with substantial incentives, as highlighted by Dawn.

FBR officials also propose simplifying reward structures, ensuring faster payouts, and restricting whistle-blower-based inquiries to the current tax year. This, they argue, would encourage voluntary compliance without triggering punitive backdated audits. “The foundation of an effective whistle-blower system rests on two elements: absolute secrecy and credible rewards,” one senior official remarked, highlighting the urgency of reforming Pakistan’s tax enforcement mechanisms, as reported by Dawn. (ANI)

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