Pakistan’s Taxation Failure  

Editorial

Speaking to the Urdu Daily Jang, the Minister for Defense, Khawaja Asif, said that an estimated 26 ‘arab’ worth of tax cases are going through the courts.

Instead of paying the tax, people resort to courts in order to delay or avoid paying their dues. Only salaried people are paying the tax. He went on to add that even if we were able to recover 50 percent of the money owed, we should be able to free ourselves from the burden of the IMF.

Two of the biggest culprits are the real estate and tobacco sectors. It is estimated that the tax potential of the tobacco industry for fiscal years 2023–24 stands at more than Rs 500 billion, but more than 50 percent  is evaded or avoided. The real estate sector is another major tax evader, with Rs 148 billion owed. 

Adviser to Prime Minister on Kashmir Affairs and Gilgit-Baltistan Qamar Zaman Kaira stressed that Pakistan was losing Rs 1 trillion in tax evasion annually, adding that if tax leakages were controlled through stringent enforcement of laws and the black economy was controlled, Pakistan would not require any foreign funding.

Pakistan is currently facing a tax gap estimated at Rs 5.8 trillion annually, which represents about 6.9 percent of the country’s gross domestic product (GDP). Of this tax, sales evasion is estimated at Rs 2.9 trillion annually.

However, the malaise of tax avoidance is across multiple sectors. For example, a detailed presentation to Prime Minister Shehbaz Sharif by the Special Investment Facilitation Council (SIFC) highlighted the scale and gravity of the situation. 

Based on fiscal year data for 2022–23, the evasion spanned multiple sectors, with the smuggling of petroleum, oil, and lubricants (POL) products alone accounting for an estimated Rs 996 billion in lost revenue. The illegal import of oil through Iran and other border areas was identified as a key contributor to this shortfall.

The breakdown of tax evasion across sectors suggests significant losses in the retail sector, estimated at Rs 888 billion, the transport sector at Rs 562 billion, independent power producers at Rs 498 billion, and smuggled-prone items at Rs 355 billion. The evasion in exports was estimated at Rs 342 billion.

The ‘others’ category encompasses a broad range of sectors, contributing to an estimated Rs1.607 trillion in annual tax evasion.

While trillions are being evaded in taxes, the government’s debt stood at 64842 PKR billion in January 2024, down from the record high of 65188.5 in December 2023, according to the State Bank of Pakistan’s last quarterly statement, March 2024.

Therefore, one cannot help but agree with the statement of the Defense Minister that if the government were to recover 50 percent of what it owes, Pakistan would not be dependent on an IMF bailout.

We would contend that many of the tycoons and conglomerates that owe billions or trillions to the state in taxes are perhaps close to the corridors of power and intimately known to the government’s top brass and the law enforcers.

Maybe the government should start by bringing them to account for what we would describe as crimes against the nation. Tax evasion of this magnitude is nothing short of high treason.

While millions are being starved, the mega-rich are getting away with the day-light robbery. Pakistan should not be kneeling down to the IMF when these fat cats are feasting on the carcases of the nation