World Bank declares Pakistan tax system 'unfair' and 'absurd'

The World Bank urged authorities to broaden the tax base and impose tax on all sources of income, including property, as it would help ease the burden on the salaried class. The global lender declared Pakistan’s tax system as highly 'unfair' and 'absurd.'

The World Bank stated that the rationalisation was only a short-term gain, but it was damaging revenue in a long time. The world's top financial body also emphasised the accurate recording and taxation of all income-generating sources.

Nadeem Javaid, the Vice Chancellor of the Pakistan Institute of Development Economics (PIDE), pointed out a significant issue in government spending, stating that nearly 40% of development funds were lost due to commissions that must be paid to certain officials.

He explained that no bill can be approved without giving a share of 5% to 7% to the Accountant General of Pakistan Revenue (AGPR). This problem was widely recognised and understood by many, he noted.

Six countries including Pakistan transporting plastic pollution in Asia: World Bank

A session, titled: “Charting Pakistan’s Fiscal Trajectory: Enhancing Transparency and Trust” at the PIDE conference highlighted the flaws in Pakistan's taxation system, and also suggested its reforms. 

Tobias Haque, the World Bank’s lead country economist for Pakistan, supported the digitalisation in the tax system, stating that “it can help ease the tax burden on the salaried class.” 

He praised agriculture, but at the same time declared the tax system as “absurd” because 5 million out of 240 million individuals file tax returns in the country while the bulk of revenue is instead generated through the General Sales Tax (GST).

"Pakistan’s tax system is inequitable, with only 5 million return filers; the system will remain unsustainable,” he added.

Read: World Bank withdraws from $500 million budget support for Pakistan

Dr Ali Salman, Executive Director of the Policy Research Institute of Market Economy (PRIME), emphasised the need to reduce the number of withholding taxes (WHTS) in the country.

He said that there were currently 88 different withholding taxes, but around 45 of these raise less than Rs1 billion each year. 

Salman stressed the importance of simplifying the tax system.

According to him, the Federal Board of Revenue (FBR) collects about Rs1.2 trillion each year through these taxes, indicating that while the system is complex, it does yield significant revenue.