The World Bank has described Pakistan’s tax system as highly “unfair and absurd,” stating that the increasing burden on the salaried class can only be alleviated by broadening the tax base and incorporating all income streams into the tax net, as reported by The News on Thursday.
The international lender called for the inclusion of the property sector in the tax net, ensuring its accurate recording and taxation. It also suggested a rationalization of the tariff structure, arguing that short-term gains are currently causing losses to long-term revenue streams.
During a session titled “Charting Pakistan’s Fiscal Trajectory: Enhancing Transparency & Trust” at the Pakistan Institute of Development Economics (PIDE), Vice-Chancellor (VC) Nadeem Javaid raised a significant point. He stated that a staggering 40% of development spending is siphoned off through commissions, as no bill gets approved without a 5% to 7% cut for the Accountant General Pakistan Revenues (AGPR). He asserted that this is a well-known fact.
Other participants in the same PIDE conference session emphasized the need for Pakistan to reform its taxation system by expanding the tax base, fully digitizing its processes, and reducing the disproportionate burden on the salaried class.
Tobias Haque, the World Bank’s lead country economist, commended the provinces for implementing the Agriculture Income Tax (AIT), considering it a step in the right direction. He stressed the urgent need for accurate documentation and taxation of the property sector.
“Digitalization and broadening the tax base to include all income streams can significantly help in easing the tax burden on the salaried class,” Haque added.
He described it as “absurd” that only 5 million people file tax returns in a country with a population of 240 million, especially when a substantial portion of revenue is generated through the regressive General Sales Tax (GST). “Pakistan’s tax system is inherently inequitable. With such a small number of return filers, the system will inevitably remain unsustainable,” he asserted.
Dr. Ali Salman, the Executive Director of the Policy Research Institute of Market Economy (PRIME), advocated for a reduction in the number of withholding taxes (WHTs). “We currently have 88 withholding taxes, and a significant 45 of them generate less than Rs1 billion annually. We urgently need clarity and simplification in this area,” he stated. He highlighted that the Federal Board of Revenue (FBR) currently collects Rs1.2 trillion annually through these WHTs.
The panellists collectively agreed that despite the availability of necessary tools and diagnostic capabilities, Pakistan has yet to achieve meaningful tax digitization. They attributed this lack of progress to political resistance, outdated legal frameworks, institutional disconnects, and a lack of administrative motivation. They emphasized that successful digital transformation requires seamless end-to-end system integration, real-time data access, and fully automated workflows.
A recurring theme throughout the discussion was the significant erosion of public trust in the tax system. This erosion is fueled by inconsistent policies, limited transparency, and a tax burden that is perceived as unfairly distributed. Speakers underscored the critical need for simplified tax codes, an integrated digital infrastructure, updated labor laws, and performance-based incentives to restore confidence among taxpayers.
