Pakistan Tax System Faces Challenges as 43 percent Declare Zero Income

In the current fiscal year, 5.9 million tax returns have been filed in Pakistan, yet a striking 43.3% of these filers have reported zero taxable income, shedding light on the country’s limited tax base, as per a news report.

Official statistics show that only 3,651 individuals reported incomes exceeding Rs100 million, with a mere 12 individuals declaring assets above Rs10 billion. These figures either reflect widespread tax evasion or indicate a genuine shortage of high-income earners in Pakistan.

For the 2024-25 fiscal year, the total number of tax filers stands at 5.8 million individuals, 104,269 Associations of Persons (AOPs), and 87,900 companies. This marks a decline from previous years, where 6.8 million filers were recorded in 2023 and 6.3 million in 2022, well below the estimated 15 million individuals who could potentially be filing taxes.

A significant gap remains in corporate filings as well, with Pakistan having over 300,000 industrial electricity connections but only 87,000 companies submitting their tax returns.

A closer look at tax declarations reveals that most filers report low incomes. Around 272,112 individuals disclosed taxable incomes of up to Rs400,000, and 187,741 reported earnings between Rs400,000 and Rs500,000.

As income levels increase, the number of tax filers diminishes. Only 1.3 million individuals declared income between Rs1 million and Rs5 million. At higher income levels, the numbers continue to drop, with only 97,326 filers reporting incomes between Rs5 million and Rs10 million and 49,359 declaring earnings in the Rs10 million to Rs50 million range.

The top income brackets are even smaller, with just 4,370 individuals reporting earnings between Rs50 million and Rs100 million, and only 3,651 declaring income above Rs100 million.

Although the total declared earnings amount to more than Rs10 trillion, the net tax collected from all filers reached only Rs2.9 trillion. These discrepancies have led the Federal Board of Revenue (FBR) to consider eliminating the non-filer category and introducing new classifications of ‘eligible’ and ‘ineligible’ taxpayers.

These new categories would help determine eligibility for high-value transactions, such as purchasing property worth Rs10 million or buying new vehicles. These proposed changes are part of an effort to improve tax documentation and expand the tax net in a country where a significant portion of economic activity remains outside the formal tax system