Moaaz Manzoor

While Pakistan has made notable progress in fiscal discipline, experts argue that the lack of substantial tax reforms continues to hinder long-term economic stability, reports WealthPK.

In recent months, the government has focused on controlling expenditure, expanding the tax base, and making structural adjustments to strengthen financial resilience. Federal Minister for Finance Senator Muhammad Aurangzeb reaffirmed these priorities in discussions with World Bank officials, emphasizing the government's commitment to structural reforms, privatization, and revenue mobilization.

Although the World Bank has recognized improvements in key economic indicators, experts remain concerned about the slow pace of tax administration reforms, which they believe are crucial to achieving sustainable fiscal health. Mutaher Khan, Co-founder of Data Darbar, told WealthPK that Pakistan’s tax system remains burdened by an overreliance on inefficient revenue measures rather than comprehensive reforms.

He noted that while policymakers acknowledge the need for change, the challenge lies in the absence of strong political will to implement lasting transformations. “The government often resorts to easy revenue collection methods, such as withholding taxes, which discourage economic activity and hinder formalization,” he explained. Khan advocated for utilizing existing data from the Federal Board of Revenue (FBR) and provincial tax authorities to track evasion and enhance compliance.

He pointed out that Pakistan’s tax machinery already possesses sophisticated tools like the Integrated Risk Information System (IRIS), which can analyze financial transactions to estimate tax liabilities and issue targeted notices. For instance, frequent business-class travelers or individuals purchasing high-value assets could be flagged for potential tax underreporting.

However, these mechanisms remain underutilized due to institutional inefficiencies and a lack of inter-agency collaboration. Khan also identified agriculture, retail, and real estate as major contributors to tax evasion, arguing that these sectors require targeted reforms rather than broad policies. “Real estate, in particular, remains one of the least taxed sectors, yet it has not been prioritized for reform,” he remarked, stressing the need for decisive policy action.

He called for better coordination between institutions like the Securities and Exchange Commission of Pakistan (SECP) and banks to facilitate data sharing and improve enforcement measures. Khan also criticized provincial tax authorities for failing to leverage available market data, noting that many provinces collected minimal revenues despite having access to substantial economic activity insights.

Echoing these concerns, Aqib Rauf Abbasi, Market Research Associate at Insights Driven Research (IDR), emphasized that Pakistan’s tax-to-GDP ratio remains below potential due to a narrow tax base. He urged for structural changes to broaden tax collection, restructure debt, and boost national savings. “Long-term fiscal stability is impossible without a wider tax net that includes high-income yet under-taxed sectors,” he asserted.

Abbasi warned that without substantial reforms, the country will remain dependent on external financing, preventing self-sustaining economic growth. Despite ongoing fiscal discipline efforts, experts agree that tax reforms are the missing piece in Pakistan’s economic puzzle. While effective in managing expenditure and stabilizing key indicators, the government's current approach does not fully address the systemic weaknesses in revenue generation. The country’s fiscal health will remain fragile without a comprehensive tax overhaul that goes beyond superficial fixes.

Credit: INP-WealthPk