Plugging tax leaks

That more than Rs2.25 trillion have been lost to tax evasion through 'fake' and 'flying' invoices in just two years is a staggering admission — and one that lays bare the scale of institutional failure plaguing Pakistan's revenue machinery. The figure, disclosed by the Federal Board of Revenue, represents nearly a third of the total taxes collected on the customs side, showing just how deeply entrenched the problem has become.

Such large-scale evasion at a time when the country is navigating a fragile economic recovery is not only unsustainable but damaging to the government's credibility. Successive administrations have repeatedly promised to broaden the tax base and improve documentation, yet loopholes that enable outright fraud continue to be exploited with impunity. The use of fake invoices to claim undue input tax credits or reduce tax liability has become a routine practice, facilitated in many cases by internal collusion.

FBR has claimed that it is the only federal institution to have taken action against its own officers involved in such malpractices. However, internal accountability alone will not suffice. While punitive measures may deter some, the persistence of such fraudulent practices points to a structural rot that requires far more than selective disciplinary action. Pakistan's low tax-to-GDP ratio is a well-documented constraint on fiscal policymaking. It limits the state's capacity to provide essential services and meet its debt obligations without resorting to regressive indirect taxation or repeated external borrowing.

To plug these revenue leaks, the government must move towards comprehensive digitisation of invoicing and supply chains along with stronger audit systems — all the while depoliticising the FBR's functioning.

No serious economic recovery can be achieved while the state remains incapable or unwilling to curb fraud within its own revenue apparatus. This haemorrhaging must end if the country wants sustainable recovery.