Problems of Pakistan’s Tax system

Governments’ only source of income generation is tax. The generated revenue is then allocated for the expenditures of federal and provincial governments. The major issue or challenge that our society is facing is unequal collection of taxes. People have been highlighting and protesting since so long on unfair tax system. It has always been a hardcore problem for Pakistan’s economy to generate revenue; this is the reason for which our government has looked for Structural Adjustment programme at first. But, the problem still lies with the tax system. Now, this is the government’s core responsibility to identify that issue and take fundamental steps for the solution of those issues.

Government needs to reform the policies specially in the area of giving large number of exemptions in sales tax, income tax, excise duty, and custom duties due to which the incidents of tax evasions takes place. Meanwhile, if we talk about a repeated and frequent change that takes place in the legislation of taxation system that leads to its distortion. I would like to mention here one thing that all the changes that takes place in the taxation system are done just to give exemption to certain elite groups and corporations. Here, one basic question comes in mind that where just, fair and transparent system?

Some highlighted issues; I try to point out here some of serious concerns on narrow tax base and tax evasion. Talking on these challenging issues some questions raise are: why people use to evade taxes? Why corporations and some elite groups are exempted from taxes? Why rich don’t pay their due amount of share? Why only poor are burdened with general sales taxes?

According to the statistics, only 1.21 million citizens pay income tax making it less than 1% of the total population. But according to state bank of Pakistan’s annual report, 57.5 million people are employed and obviously are earning some income and thus 57.5 million people should be paying income tax one way or the other. So, that rules out the figure of tax payers that keeps on floating here and there. Moreover, Pakistan’s total population is around 207 million. According to the common notion, 29% of the population is paying the taxes. But, according to economic survey of Pakistan 61.4% population is of working age making 122 million people fall into the working population. Besides, 57.5 million tax payers constitute of 48% these working people.

Approximately 140 million mobile users pay more than 20% taxes on their consumption. People use automobiles which use fossil fuels that are subject to different taxes and consequently people end up paying them. These are the most certain taxes that probably no one can evade. Now here, what I wanted to highlight is that all the users are paying equal taxes, do you not think that it should be charged on the basis of the income of a user?

The problem lies with the poor management of our existing resources. What if, our government went for progressive tax system instead of regressive one? Progressive tax system is defined as when you impose higher taxes for the people with higher income whereas, lower taxes are going to be imposed for the lower level of people.

To sum, I would like to say that people will surely don’t evade taxes if they don’t find the absence of trust. Whereas, the state should move towards the progressive tax system so that the one who is rich won’t get richer and the one who is poor won’t get poorer. As, people will then find justice to them.  We find the lack of transparency and accountability within the system as well, that make people question that whether the money we’re paying in terms of taxes is being utilized for our own benefits or it being used for satisfying the interests of someone else. Therefore, it is to be recommended that the government should make reform in the tax system, there is a badly need of using modern technology to analyze data, ensure the level of trust, accountability and transparency for achieving better tax system.






Country collects taxes from its citizens in order to spend it for the betterment of their people. With this collection of the income tax, the government spends it on national defense, debt related services and the welfare-related issue of their citizens.  But, here the thing that needs to be addressed is to make sure that the tax policy should be based upon equity, justice and fair treatment for each taxpayer.

Now when it comes in terms of Pakistan, its taxations system comprises of two divisions named Direct and Indirect taxes. As we have discussed earlier that the tax policy should be based on fair treatment. But, the situation is different in case of our country. There is no fair and equity-based tax collection. Whatever tax is being charged from a rich people is also being charged upon the poor. Let’s take a very simple and a common example of Our Recharge. Tax while recharging a card is being imposed the same on all of us. As per according to the recent report of Federal Board of Revenue (FBR), as a Pakistani citizen, every person is liable to pay 125,000 just to pay our debts to our foreign and domestic lenders.

In case of Pakistan, only poor people are subjected to pay heavy taxes and faces harsh taxation policies just to finance and facilitate the rich people. Poor people don’t even know the basic rights of paying taxes when in contrast-rich people can hire highly paid lawyers who can keep them away from paying the maximum amount of tax and provides new and secret ways of avoiding tax.  Now, this is the responsibility of any government that they should make an autonomous organization which should be free from any political influence.

There should be a strict accountability mechanism to check either an official or unofficial is involved in corrupt practices. The government should mechanized a system where this should be important to make sure that everyone is supposed to pay tax as per according to one’s income, capacity, and ability to pay tax. Now here, another most important thing that a government needs to address is to restore the public trust in the taxation system. Pakistani Government needs to realize that pour current Tax Collection Policy is very weak, it has got much of loopholes,, which needs to be filled as soon as possible for the prosperity and development of the economy.