The World Bank has called Pakistan’s tax system “absurd,” “unfair,” and “broken.” That’s a big deal because tax money runs schools, hospitals, and public services. If the system is weak, so is the country’s foundation.
Let’s break down what the World Bank is saying and what it thinks Pakistan should do to fix the system.
1. Too Few People Pay Taxes
Very few people pay taxes in Pakistan, and most of those who do are already struggling to make ends meet.
Out of 240 million people, only about 5 million file tax returns. That’s just a tiny fraction! Most tax money comes from things like the General Sales Tax (GST), which is added to the price of everyday goods. This means ordinary people pay more, even when they earn less.
Meanwhile, wealthy landowners and big property investors often pay nothing. That’s why the system feels unfair to those who have less are paying more, while those who have more often escape taxes.
2. Exemptions & Free Passes for Powerful Sectors
Some sectors get special treatment and don’t have to pay taxes like everyone else.
The government gives exemptions and concessions to industries like agriculture, construction, and textiles. These tax breaks may seem helpful, but they’re often given for political reasons, not economic ones.
According to the World Bank, these exemptions cost the country around PKR 400 billion every year. That’s money that could have gone into healthcare, education, or infrastructure.
3. Tax Evasion is Widespread
Many people and businesses hide their real income or wealth to avoid paying taxes.
In Pakistan, tax evasion is common especially in real estate, car trading, and medicine. People often underreport how much their property or income is worth. For example, someone might sell a house for PKR 1 crore but report it as PKR 50 lakh.
Also, about 80% of bank accounts are not linked to tax records. This means a large portion of people’s wealth is invisible to the tax department, making it easier to avoid taxes.
4. Too Many Complicated Taxes
The tax system is full of confusing rules, which makes it hard for people to follow.
Pakistan has 88 different withholding taxes, small amounts of tax collected at different stages, like when you get your salary or make a payment. But most of these taxes don’t bring in much revenue and only add confusion.
The World Bank says the system should be simplified so that people find it easier to comply, and tax authorities can focus on important areas.
5. Corruption in Public Spending
Even when the government collects money, a lot of it doesn’t reach the people because of corruption.
According to the World Bank, about 40% of public development funds (used for building roads, schools, etc.) are lost due to commissions, kickbacks, and poor management. In many cases, officials ask for 5–7% cuts on bills in return for approvals.
This not only wastes money but also destroys public trust in how taxes are being used.
What Needs to Be Done?
1. Bring Property and Agriculture into the Tax Net
Wealthy property owners and large landholders must also start paying their fair share.
Sectors like real estate and agriculture are making big money but barely pay any tax. The World Bank says it’s time these groups are included in the tax system to reduce pressure on salaried people.
Some provinces have already started collecting Agriculture Income Tax, and that’s a step in the right direction.
2. Go Digital with Tax Collection
Make the tax system modern, online, and automatic to reduce errors and catch evasion.
Digitizing tax processes will make it easier to track income, collect taxes, and reduce fraud. Things like real-time data, online payments, and automated systems can make a big difference.
The World Bank recently approved $70 million in funding to help Pakistan’s tax department go digital. But outdated laws and political resistance are slowing progress.
3. Make Taxes Simple and Fair
4. Increase Transparency and Accountability
The public must know where tax money is going, and misuse should be punished.
The government needs to publish details on how tax money is used, track large transactions, and stop leakages in development funds. If people see that taxes are being used well, they’ll be more willing to pay.
5. Connect Tax Reform with Bigger Economic Goals
Conclusion
The World Bank’s message is loud and clear: Pakistan must fix its tax system now.
The country needs to tax the rich, simplify rules, go digital, and stop wasting public money. If done right, these reforms can help Pakistan collect more money, support development, and build a fairer system for everyone.
But none of this will work without strong political will, clear laws, and public trust. The tools are there. The funding is there. Now, it’s time to act.
Sources:
dailytimes.com.pk
www.ndtv.com
dialoguepakistan.com
propakistani.pk
www.theigc.org