Mehmood ul Hasan Qadir — Economist & Financial Analyst | Dubai, UAE

The Pakistan Ledger | Opinion

Pakistan’s tax-to-GDP ratio — hovering around 9–10% of GDP across the past decade — is among the lowest in the world for an economy of its size and complexity. Egypt’s tax-to-GDP ratio is approximately 14%. Turkey’s is approximately 25%. India’s, despite significant informality, is approaching 18%. The global median for lower-middle-income countries is approximately 15–17%. Pakistan’s chronic underperformance on tax revenue collection is not, at its core, a technocratic failure of the FBR. It is a political settlement — an implicit agreement between the state and the powerful economic interests that dominate the economy — to not tax the major pools of income and wealth at anything approaching their economic capacity. Until that settlement is confronted, no amount of FBR reform, digitalisation, or IMF conditionality will move Pakistan’s tax-to-GDP ratio to a level that funds a functional state.

The FBR Data — What Is Collected and What Is Not

FBR’s gross tax collection in FY2022–23 was approximately Rs. 7.1 trillion — a record nominal figure that nonetheless fell short of revised downward targets and was achieved substantially through withholding taxes on transactions rather than through broadened taxpayer base coverage. The number of income tax return filers in Pakistan — a country of 220 million people — is approximately 4–5 million. The number of actively assessed taxpayers paying meaningful income tax is substantially less.

FBR’s Tax Expenditure Report — the official accounting of revenue foregone through exemptions, zero-ratings, concessions, and preferential treatments — documents tax expenditures running at Rs. 1–2 trillion annually. These are revenues that the state has legally decided not to collect, through legislative and regulatory choices. Not all tax expenditures are unjustified — some support export competitiveness, some protect the poor — but the aggregate scale of Pakistan’s tax expenditure regime, compared to the extraordinary development needs that additional revenue would fund, is a resource allocation choice that deserves far more scrutiny than it receives.

Agricultural Income — The Political Third Rail

Agricultural income taxation in Pakistan is constitutionally a provincial subject. Provincial governments have historically declined to tax agricultural income meaningfully — not because of economic justification, but because large landowners are disproportionately represented in provincial legislatures and the political networks that determine electoral outcomes. The fiscal cost of agricultural income tax exemption is estimated at Rs. 300–700 billion annually depending on agricultural income estimation methodology. This is revenue foregone to protect the economic interests of the land-owning class — a class that is simultaneously one of the wealthiest and one of the least-taxed segments of Pakistani society.

IMF Article IV consultations and programme conditions have repeatedly flagged agricultural income taxation as a critical reform. Multiple reform programmes have included it as a structural benchmark. The actual implementation of meaningful agricultural income taxation at provincial level remains almost completely absent. This is not a technical capacity problem. Provincial revenue authorities can administer an agricultural income tax — the mechanism is straightforward. The problem is that implementing it would require provincial assemblies to vote to tax their own members and patrons. That has not happened and will not happen without external pressure of a kind that the IMF, operating through federal government negotiations, cannot consistently deliver.

The Retail Sector — Documented in Theory, Informal in Practice

Pakistan’s retail sector — estimated at Rs. 15–20 trillion in annual turnover — is largely outside the formal tax documentation system. Retailers in the major commercial centres of Lahore, Karachi, and other cities operate on the basis of fixed tax arrangements — the Tajir Dost scheme and its predecessors — that bear minimal relationship to actual turnover or income. Attempts to document the retail sector through point-of-sale terminal requirements have met with organised resistance from traders’ associations that have historically been able to mobilise political pressure to block or dilute enforcement.

The Turkey and Egypt Comparison — Reform Is Possible

Turkey’s tax-to-GDP ratio improvement from approximately 14% in the 1990s to 25% by the 2010s was achieved through a combination of VAT broadening, income tax reform, and most importantly, the documentation of the informal economy through linked financial data systems — the Gelir İdaresi Başkanlığı’s integrated taxpayer database. Egypt’s tax reform, implemented under IMF programme conditions from 2016 onward, achieved meaningful improvement in tax collection through VAT introduction, subsidy rationalisation, and property tax reform. Both cases show that revenue mobilisation at Pakistan’s income level is achievable with sustained political commitment.

Pakistan’s 9% tax-to-GDP ratio is a political choice. The revenue is in the economy. It flows through real estate transactions, agricultural income, retail sales, and professional services. It is simply not collected because the people who determine tax policy are largely the same people from whom that tax would be collected. Until that political economy is disrupted — through democratic accountability, civil society pressure, or the fiscal crisis that makes continued non-collection unsustainable — the state will remain chronically underfunded, the development budget will remain inadequate, and the IMF programme cycle will continue indefinitely.

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Mehmood ul Hasan Qadir is an Economist and Financial Analyst based in Dubai, UAE. He writes on Pakistan’s economic structure, policy failures, and reform pathways for The Pakistan Ledger.