The International Monetary Fund (IMF) has warned that Pakistan is haemorrhaging massive revenue due to widespread tax evasion, corruption, hidden incomes, and a complex tax structure, estimating a Rs3.4 trillion loss to the national exchequer — equivalent to 3.9% of GDP.

In a detailed assessment shared after the IMF technical review delegation’s visit, the Fund demanded urgent and sweeping reforms to expand the tax base, eliminate exemptions, and strengthen accountability within the tax machinery.

Severe systemic weaknesses in tax structure

According to the IMF, Pakistan’s tax system suffers from deep-rooted weaknesses, including:

Rampant tax evasion and corruption
A widespread culture of hiding real income
Fake filers and zero-income returns
A highly complex legal framework
Incentives and tax privileges granted to politically influential sectors

The Fund noted that registered taxpayers remain stuck at around five million, far below official claims. Of the 5.9 million tax returns filed recently, a staggering 43% declared zero income, raising red flags about false declarations and the inclusion of fake filers.

These factors have kept Pakistan’s tax-to-GDP ratio frozen at 10% for the past five years — one of the lowest in the region.

IMF demands 15m registered taxpayers

The IMF has instructed Pakistan to increase the number of registered taxpayers to at least 15 million, calling it essential for sustainable revenue generation.

To achieve this, the Fund has recommended:

Documenting the economy fully
Registering all business sectors
Strengthening data verification
Preventing fake invoices and bogus receipts
Formulating a long-term, stable tax policy

The Fund stressed that without documentation and enforcement, Pakistan will continue losing billions annually.

The IMF sharply criticized the government’s extensive use of concessional SROs (Statutory Regulatory Orders), calling them a major source of distortion and revenue leakage.

In 2024 alone, 168 SROs were issued, further complicating the tax system and granting privileges to selected industries.

The Fund said all tax exemptions and concessions should be abolished immediately, and a uniform tax regime should be implemented.

Weak oversight in FBR, informal economy

The IMF report highlights serious governance and accountability gaps within the Federal Board of Revenue (FBR):

No effective internal accountability
Corruption cases rarely pursued legally
Weak internal controls
A flawed refund system lacking transparency

The expanding informal economy has also inflicted severe damage on Pakistan’s finances, as massive portions of national income remain undocumented and untaxed.

IMF technical review and next steps

The IMF’s technical review delegation has now returned, after holding detailed discussions focused on improving data accuracy in budget preparation. The Fund also pushed for expanding the tax net, auditing supplementary grants, and using reliable data to avoid inaccuracies in the national budget.

The IMF is expected to release a comprehensive technical report on Pakistan’s budget preparation in January.