ADB Exposes Deep Flaws in Pakistan’s Tax System, Paper Reforms, Real Crisis

The Asian Development Bank (ADB) has released a hard-hitting report criticizing Pakistan’s tax collection system, stating that despite significant growth in the formal economy and a decade of supposed reforms, tax revenue remains stagnant and alarmingly low.

Pakistan’s tax-to-GDP ratio between 2014 and 2021 remained at just 3 to 4%, the lowest in the region. The ADB noted that while the number of registered tax filers has increased, most new filers either underreport their income or engage in tax evasion. This has increased the burden on both the FBR and the taxpayers without improving compliance or transparency.

In 2022 alone, a 30% shortfall in income tax and a 24% shortfall in sales tax were recorded, highlighting critical enforcement issues. Only 7.6% of the labor force files income tax, compared to far higher participation in regional countries like Vietnam.

The ADB warns that unless the Federal Board of Revenue (FBR) adopts bold, clear priorities and focuses on genuine enforcement, the fiscal consequences for Pakistan could be dire.