The International Monetary Fund (IMF) has raised alarm over Pakistan’s massive revenue losses, estimating that tax evasion, corruption, hidden incomes, and a complex tax system are costing the national exchequer a staggering Rs3.4 trillion — roughly 3.9% of GDP.

Following the IMF technical review delegation’s visit, the Fund called for urgent and comprehensive reforms to broaden the tax base, remove exemptions, and strengthen accountability across the tax machinery.

Deep-rooted weaknesses in Pakistan’s tax system

The IMF report highlighted systemic flaws undermining revenue collection, including:

• Rampant tax evasion and corruption

• A widespread culture of hiding real income

• Fake filers and zero-income tax returns

• A complex and confusing legal framework

• Tax privileges and incentives for politically connected sectors

The Fund noted that registered taxpayers remain around five million, far below official claims. Alarmingly, out of 5.9 million returns recently filed, 43% reported zero income, indicating widespread false declarations and possible fake filers. These issues have kept Pakistan’s tax-to-GDP ratio stagnant at just 10% for the past five years, one of the lowest in South Asia.

IMF calls for 15 million taxpayers

To ensure sustainable revenue, the IMF has urged Pakistan to raise registered taxpayers to at least 15 million. Recommendations include:

• Full documentation of the economy

• Registration of all business sectors

• Strengthening data verification systems

• Preventing fake invoices and bogus receipts

• Establishing a long-term, stable tax policy

The IMF warned that without proper documentation and enforcement, Pakistan will continue losing billions annually.

The Fund also criticized the government’s extensive use of Statutory Regulatory Orders (SROs), describing them as a major source of distortion and revenue leakage. In 2024 alone, 168 SROs were issued, further complicating the tax system and giving undue privileges to select industries. The IMF recommends immediate abolition of all tax exemptions and concessions, replacing them with a uniform tax regime.

Weak oversight and informal economy

Governance and accountability gaps within the Federal Board of Revenue (FBR) were also highlighted, including:

• Lack of internal accountability

• Rare legal follow-up on corruption cases

• Weak internal controls

• Non-transparent refund systems

The report stressed that Pakistan’s growing informal economy is worsening the crisis, leaving large portions of national income undocumented and untaxed.

The IMF delegation concluded detailed discussions focused on improving data accuracy for budget preparation, expanding the tax net, auditing supplementary grants, and using reliable data to prevent budgetary errors. A comprehensive technical report on Pakistan’s budget system is expected in January.