Nil-income dilemma

Pakistan's tax collection machinery is infected with lacunas of filers and non-filers, coupled with a regressive system that is highly inequitable and corrupt. The dilemma has graduated to post a staggering figure of 39% of people not filing their due returns, and seeking refuge behind the excuse of nil income. The reality is quite contrary as many of them are affluent and duck down only to evade due taxation. In other words, the FBR is failing to capture the true wealth of its subjects, an aspect time and again flagged by international lenders too. The challenge is that 2.262 million out of 5.912 million registered entities have concealed their taxable income, and only 3.650 million taxpayers declared incomes in their returns for tax year 2025. This must elicit some stringent auto-correction and a broad-based policy to ensure that the tax collection target of Rs14.131 trillion is met.

It is noticeable that the number of nil filers, both salaried and non-salaried, have surged during FY25. The pattern, likewise, falls in three categories of individuals, associations of persons and the corporate sector. The enigma is that the existing policy encourages people to submit tax returns without paying taxes to benefit from reduced tax rates. It is so because our cash-driven and largely undocumented economy continues to shield undeclared wealth from formal scrutiny. Besides being unable to broaden the tax base, it has led to elite capture of society and the economy.

It is a given that by maneuvering state resources and policies for personal gain, the elite are obstructing a growth of around 6% of GDP, hindering equitable development. A case in point is that the IMF notified Rs5.3 trillion corruption that is yet to be accounted for in the national exchequer. The way forward is to make each and every individual pay the due amount of tax. The phenomenon of holy cows and the untouchables must be done away with. It requires moving away from an obsolete system reliant on indirect taxes toward a digitised-first module that is fair and equitable.