In a significant revelation, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial disclosed that Pakistan’s top 5% earners have failed to pay taxes amounting to Rs. 1.6 trillion. The announcement was made during a press conference on Thursday, where Langrial was joined by Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb and Minister of State for Finance and Revenue Ali Pervaiz Malik.
Tax Gap Widens to Rs. 7.1 Trillion
Langrial revealed that the government’s tax gap for the current fiscal year has surged to Rs. 7.1 trillion, compared to Rs. 6.2 trillion last year. He emphasized that the government’s primary focus is on addressing tax evasion among the top 5% of earners, who account for a significant portion of the unpaid taxes.
According to Langrial, approximately 3.3 million individuals fall into the top 5% income bracket. However, only 0.6 million of them file income tax returns, leaving 2.7 million individuals either filing below their actual category or not filing at all. “Their tax liability stands at over Rs. 1.6 trillion,” he stated.
In contrast, Langrial noted that the total unpaid tax liability for all categories below the top 5% amounts to just Rs. 140 billion.
Government’s Tax Reforms and Digitization Efforts
Finance Minister Muhammad Aurangzeb highlighted the government’s commitment to tax reforms as part of its broader structural reform agenda. He pointed to the recently introduced Tax Amendment Bill, which aims to improve compliance within the tax regime.
Aurangzeb also discussed the government’s digitization efforts, stating that the design phase for modernizing the FBR’s internal systems was approved in September by Prime Minister Shehbaz Sharif. “In the last three to four months, we have now entered the execution phase,” he said, adding that the government is focused on increasing revenue, improving the economy, and easing the process of doing business.
The finance minister reiterated the government’s goal of raising the tax-to-GDP ratio to at least 13%, which he described as a critical threshold for fiscal sustainability.
Expanding the Tax Net
Minister of State for Finance and Revenue Ali Pervaiz Malik shared that the number of tax filers has increased significantly, with 5 million individuals filing returns by October 2024, compared to 3 million last year. He also revealed that the government had identified 190,000 individuals, based on consumption data, who should have been included in the tax net but were non-filers. “These individuals are estimated to owe Rs. 50-60 billion in direct taxes,” he said.
Future Tax Policy
Addressing a query, FBR Chairman Langrial hinted at a potential reduction in the General Sales Tax (GST) rate to 10-12% in the coming years, signaling the government’s intent to make the tax system more equitable and efficient.
