ADB Report Slams Pakistan’s 10% Tax-to-GDP Ratio

Islamabad, July 09, 2025, 04:31 PM PKT — A stinging new report by the Asian Development Bank (ADB), titled “Taxing Informal and Hard-to-Tax Sectors: A Policy Guide”, exposes Pakistan’s persistent tax-to-GDP ratio crisis, stuck at a meager 10%—well below the regional average of 20%—despite numerous reforms, with minimal gains in taxing the informal economy. Nominal income tax revenue has risen, but real growth remains stagnant, reflecting failure to expand the formal tax base or boost compliance, as only 7.6% of the labor force is registered for income tax versus higher rates in Vietnam.

The ADB warns that increasing registered taxpayers—a recent focus—yields little revenue, with many new filers reporting zero taxable income or partial compliance, inflating administrative costs without benefits. The formal sector, tripled since 2014, hasn’t lifted tax revenue, as withholding tax hikes on non-filers fail to incentivize genuine compliance—many register only to avoid penalties. The informal economy thrives beyond the tax net, despite penalties and transaction curbs, mirroring unsuccessful strategies in Rwanda, South Africa, and Uganda, where tax base expansion alone didn’t boost collections.

Web context highlights tax evasion trends (e.g., 40% informal sector), while posts found on X show disappointment—some blame policy flaws, others question enforcement. Critically, the narrative of “reform progress” may mask structural weaknesses—web data points to compliance gaps, and X sentiment suggests distrust in effective change, hinting at deep-rooted challenges.