Pakistan’s Tax Authority – A White Elephant

Pakistan’s economy is currently going through a crucial period, like many other economies in the world. Along with unprecedented floods and political turmoil, the economy is beset by skyrocketing interest rates and inflation, as well as a decline in imports.

Pakistan’s struggle is not helped by the fact that its tax authority, the Federal Board of Revenue (FBR), is failing to raise – and collect – enough taxes.

While the country’s tax capacity stands at 22% of GDP, less than half of that capacity is ever realised. For example, the tax-GDP ratio in 2022-23 only reached 8.5%, well below that of neighbouring countries India (11.6%) and China (12.1%).

Where’s the problem?

The ability of the FBR to tap tax sources under its jurisdiction has been constrained by a complex and opaque tax administration. Added to this is a top-heavy management lacking in delegation skills and accountability, an excessively large pool of staff, and an ongoing conflict of interest between two functions – policy and collection – that sit side-by-side under one roof.