For the first time, the Federal Board of Revenue (FBR) has officially admitted that a huge tax loophole of Rs. 1.289 trillion exist in Pakistan’s tax collection system, sources exclusively revealed to ProPakistani on Monday.
According to the sources, the FBR has prepared a report on the tax gap analysis for 2022. The total tax gap of Rs. 1,289 billion in 2022 is about 26% of the potential tax collection under the current regime.
Sources further revealed that the FBR has calculated a sales tax loophole of Rs. 519 billion which is 24 percent of the potential tax collection under the current sales tax regime. The income tax gap is Rs. 730 billion which is 31 percent of the potential tax collection under the current income tax regime. The customs duty gap is Rs. 40 billion which is 11 percent of the potential customs duty recoverable.
The FBR plays a central role in revenue collection for the federal government, but despite its best efforts in tax collection, a significant portion of tax revenue remains unpaid. This gap in tax revenue is attributed to tax evasion and tax avoidance practices. The tax loss resulting from non-compliance is ultimately passed on to those who pay taxes.
In accordance with international practices, these tax gap estimates are calculated by involving third-party data that may be inconsistent and subject to a time lag. Existing literature suggests that such estimates could be used for long-term policy planning, rather than short-term revenue-raising measures at the operational level, FBR officials explained.
The tax gap is generally defined as the difference between what taxpayers should pay and what they actually pay. This report provides tax gap estimates to measure taxpayers’ tax compliance with their federal tax obligations.