I would reduce the tax rate by 15 percent if circumstances allowed, but I am constrained by the requirements of the IMF—Shehbaz Sharif, Prime Minister of Pakistan, while inaugurating a new hotel in Islamabad on January 27, 2025
There are segments of society that are ready to pay three times more tax but are not willing to deal with the FBR, which we have to change—Muhammad Aurangzeb, Federal Minister for Finance & Revenue.
Tax-to-GDP ratio rose to 10.8% in the second quarter, up from 9.5% in the first quarter, though it remained below the target of 13.6% by the end of the IMF program. In comparison, India's tax-to-GDP ratio stands at 18%—Govt stops car buying for taxmen, The Express Tribune, January 31, 2025
FBR has suffered a shortfall of Rs384 billion during the first six months (July-December) 2024-25 due to….anticipated at the time of budget (2024-25)… Total loss in autonomous growth by February 2025 is projected at Rs447 billion…this trend is likely to continue in January and February 2025, however, the growth will pick up in the last four months of the current fiscal year and hence there will be no further loss in revenue collection on account of autonomous growth during March-June (2024-25)—Rashid Mahmood Langrial, Chairman FBR, in a briefing before Senate’s Standing Committee on Finance & Revenue, January 30, 2025
Pakistan has one of the world’s lowest tax ratios, stemming from five main weaknesses: complexity, a narrow tax base, low compliance, inefficient tax administration, and low and declining provincial tax revenues—Pakistan Policy Note 16: Mobilising Revenue, Jose R. Lopez-Calix and Irum Touqeer, The World Bank.
The Federal Board of Revenue (FBR), despite claims of “extraordinary” (sic) efforts has miserably failed to meet the half-yearly target of Rs. 6 trillion for the current fiscal year (FY) 2025, missed it by Rs. 384 billion as per admission of its Chairman before the Senate’s Standing Committee On Finance & Revenue on January 30, 2025. The Chairman FBR projected that by February 2025, the gap will be Rs. 447 billion! It is not something new—except for the fiscal year 2021-22, FBR rarely achieved the originally assigned targets. In fact, FBR could not even achieve the revised targets for decades resulting in more than anticipated yearly fiscal gaps by the budget makers.
It is worthwhile to mention that FBR never reveals data of determined refunds not issued (deliberately blocked is a better connotation) during a fiscal year. In other words, to that extent, the collection is always overstated—this aspect is highlighted repeatedly in these columns but the Auditor General of Pakistan has conducted no independent audit, even though it is a constitutional responsibility. The Federal Tax Ombudsman (FTO) has now reportedly taken suo muto note of it—hopefully, it will come up with some suitable actions to deter this malpractice and generate a comprehensive report for the public at large to fulfill the requirement of Article 19A of the Constitution of Islamic Republic of Pakistan [“the Constitution”].
The Chairman FBR in a briefing before the Senate’s Standing Committee on Revenue & Finance revealed, “The number of retailers increased from 0.2 million last year to 0.6 million this year. The tax paid with the income tax return filers has also increased up to Rs105 billion during this year”. The Chairman, however, did not mention the accumulative refund figure claimed with returns for tax year 2024. The refund applications filed electronically remain unpaid in violation of the stipulated time provided in section 170 of the Income Tax Ordinance, 2001.
As mentioned in last week’s column, if all legally determined refunds during the FY 2024, blocked by field formations, stand deducted from the total tax collection of Rs. 9299 billion claimed by FBR, the net collection could not have been more than 8.5 trillion. It is shocking that as per Chairman FBR, only 600,000 traders filed income tax returns for the tax year 2024, whereas their taxable base is not less than 5 million based on utilisation of electricity and other utilities etc. It is time that FBR places data on its website about tax returns filed for the tax year 2024 with complete bifurcation and bona fide refunds claimed in these returns.
There exists a national consensus about the huge tax gap in Pakistan partly because of weaknesses in enforcement and partly due to bad tax policy
A story published in The News on January 29, 2025, gives some bifurcation of income tax returns filed for tax year 2024. It presents a disappointing state of affairs claiming, “…despite 5.9 million tax returns filed, a staggering 43.3pc of filers reported zero taxable income (NIL). Moreover, only 3,651 individuals declared taxable income exceeding Rs100 million, highlighting a significant disparity in the country’s tax base”. It is the duty of FBR to disclose complete data of tax returns filed, but it has failed to do so despite repeated requests in these columns.
There exists a national consensus about huge tax gap in Pakistan partly because of weaknesses in enforcement and partly due to bad tax policy. On January 31, 2024, FBR’s website showed 6,183,695 persons on Active Taxpayers List (ATL)—updated on daily basis. It may be noted that December 31, 2025 was the last date for filing returns for all categories of taxpayers in Pakistan.
The data available on ATL show that individual income return filers totaled 4,289,025 and that only 1,849,670 returns were filed by companies, firms, and associations of persons (AOPs) combined. Unfortunately, till the time of writing these lines, FBR did not convey (though requested), the total returns filed for tax year 2024, tax paid with returns, and refund claimed. Hopefully, these statistics will be made public by FBR soon—to know such information is the fundamental right of every citizen under Article 19A of the Constitution. In the meantime, the data obtained by the writer of the story published in The News once again confirms beyond any doubt that only a small fraction of the entire income taxpayers’ population filed returns for the tax year 2024.
FBR has admitted in the Revenue Division 2024 Year Book that millions of citizens paid advance income tax of Rs. 2.740 trillion (60% of total income tax collection during FY 2024) under various withholding provisions (more than 65 are in operation). It is claimed in the Annual Performance Report (2023-24) that during the FY 2024, field formations succeeded in registering 4,738,595 new income taxpayers, raising the total number to 13,446,015. It is shocking that the total registered income taxpayers as of June 30, 2024, as per FBR’s own admission, was only 4.74 million, whereas on ATL this number even on the last day of January 2025, at the time of writing these lines, is only 6,183,695! FBR must explain this monstrous gap!
The above figures show that there is something fundamentally wrong with the presentation of data by FBR in its publications and elsewhere. Based on figures (FBR alone can confirm its authenticity or deny it) given in the story published in The News, Mr. Amer Sharif on X posted the following table:
| Analysis of Income Tax Returns Filed for Tax Year 2024 |
| Declared Annual Income Category | Return filed by (no of persons) | Annual Tax Contribution Category/Rate | %age of Total Returns Filed | Remarks |
| NIL Filers 0 – 400,000 400,001 – 500,000 500,001 – 600,000 600,001 – 700,000 700,001 – 800,000 800,001 – 900,000 900,001 – 1,000,000 | 2,254,760 272,112 187,741 484,517 514,461 308,278 243,538 181,131 | – – – – 2,500 5,000 7,500 10,000 | 37.98% 4.58% 3.16% 8.16% 8.67% 5.19% 4.10% 3.05% | Their contribution is minimal. Even if they were to pay the maximum amount within their respective slabs, the total contribution from these 4.8 million returns would not exceed 7 billion. |
| 4,446,538 74.90% |
| Real Losers |
| 1,000,001 – 5,000,000 5,000,001 – 10,000,000 10,000,001 – 50,000,000 50,000,000 – 100,000,000 Exceeding 100 Million | 1,335,103 97,326 49,359 4,370 3,651 | Taxes paid at different slabs for individuals/ AOP Range From 2.5% to 45% while corporate are taxed at 39% | 22.49% 1.64% 0.83% 0.07% 0.06% | These 1.45 million taxpayers are the real losers, having been unfairly targeted over the past five years and actually shouldering the burden of direct taxes. |
| 1,489,809 25.10% |
| Total Returns Filed 5,936,347 100.00% |
The above table based on non-official data provided by a respected journalist, Mehtab Haider in his widely quoted story, is self-explanatory, confirming the disturbing aspects of our distorted tax base, and exposing the efficacy of FBR to secure returns from even all the 13,446,015 registered income taxpayers, as claimed in Annual Performance Report (2023-24) and discussed at length in a recent column.
It is an irrefutable fact that all adults in Pakistan having bio-metrically verified mobile connections were/are paying income tax, whether they earn taxable income or not
According to the Pakistan Telecommunication Authority (PTA), accessed on January 31, 2025, at 12:47 pm, the total cellular/broadband subscribers as of December 31, 2024, were 193 million (79% mobile density), 138 million mobile broadband subscribers (56.58% mobile broadband penetration), 3 million fixed telephone subscribers (1.10 fixed teledensity) and 142 million broadband subscribers (58.08% broadband penetration).
The above data proves beyond any doubt that with effect from July 1, 2024, the entire taxable population and even those having no income or income below the taxable limit are paying advance and adjustable income tax—15% as filers, and 75% in case of those mentioned in a general order issued under section 114B of the Income Tax Ordinance, 2001, being prepaid or postpaid mobile/broadband/internet users.
It is an irrefutable fact that all adults in Pakistan having bio-metrically verified mobile connections were/are paying income tax, whether they earn taxable income or not! If all of them file returns, not less than 100 million will be entitled to refunds. However, it is also disturbing to note that until January 31, 2025, at 12:55 pm, the total number of persons (natural and legal) showing any taxable income is as low as 2 million out of a total 6,183,695 filers (4,289,025 individuals and 1,849,670 non-individuals) appearing as active income taxpayers at the website of FBR!
The number of unique mobile users was not less than 120 million as of June 30, 2024. It means that FBR could have found at least 30 million taxable persons from this database alone—all were paying advance/adjustable income tax. The number of individual tax filers on ATL is even less than 4% of unique mobile users paying advance income tax under section 236 of the Income Tax Ordinance, 2001.
The above data/facts prove beyond any doubt that presently, the entire taxable population and even those having no income or income below the taxable limit are paying advance/adjustable income tax at source as mobile users. In case, all of them file income tax returns, there will be a refund payable to at least 90 million! However, claiming refunds will cost them much higher than withheld tax—sadly, FBR does not acknowledge them as “taxpayers” and is even not ready to register all of them based on data available with service providers. Even after that, they will not get refunds that FBR is extremely reluctant to pay even to existing income tax filers!
Note: The FBR data shown in the table has been changed by the author based on pertinent feedback provided by Amer Sharif.