Insight: Low Income Tax revenue in Pakistan

Pakistan’s Income Tax Revenue is approx 11% of GDP – Source World Bank Database

Did you submitted Income Tax return last year? Most of us  don’t feel happy answering this famous question. Some of those who do answer positively, express strong resentment as if the government ripped them off by taking share of their hard earned money. The fact is: tax evasion is a criminal offense similar to committing a murder or involving in acts punishable under penal code. Just to let you know, Pakistan’s tax revenue to GDP ratio is 11.1% which is low when compared to rest of the World (14.3%), Europe &  Central Asia (18.6%) and Sub-Saharan Africa (13.8%). We can only improve this by increasing the number of tax payers in the country. Economic prosperity is an other factor which directly related to tax-to-gdp ratio (countries with higher tax to gdp ratio are more prosperous).


In ideal conditions it’s imperative for every citizen, business owners to religiously pay taxes irrelevant of their political views, opinions and affiliations as it helps the state to function and deliver core responsibilities i.e., national defense, economic development, utility, education, health, infrastructure etc.

Unfortunately, the people of Pakistan are more reluctant to pay taxes, mainly because of; lack of trust; governance issues; abuse of funds; and corruption. Whatever the reasons or arguments could be to evade tax, but these evaders need to understand the fact that tax evasion will not solve mega problems of country and they are equally responsible as corrupt politicians and public officials. How can one expect the government to improve economic conditions? How will 2% of tax payers finance operations of government to meet expectations of 180 million citizens? Shall we hold tax evaders responsible for $65 Billion national debt?

In a nutshell, miracles won’t happen and as a matter of fact, we should take steps in individual capacity to become good and responsible citizens by fulfilling our part i.e., paying taxes, casting votes and helping poor and needy whenever possible.

How taxpayers can help to increase income tax revenue and legally reduce income tax liability in Pakistan?

Salaried Class and Self-Employed professionals can take dual advantage (tax-credit and profit) by investing in mutual funds and pension funds to reduce their tax liability up to 40% (pay 40% less tax) and earn return on their investment.

In addition, the withholding taxes paid throughout the year during different transactions (school fees, utility bills, banks etc) can further reduce the tax liability by another 2-3%. Unfortunately, lack of information leads us to commit costly mistakes. It’s never too late to get started: correctly submitting income tax returns, taking dual-benefits and hiring a tax lawyer who can assist at a very reasonable cost.

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