Rs 700 Billion Tax Fraud Threatens Pakistan’s Economic Recovery

Karachi: The chairman of the National Business Group Pakistan, Mian Zahid Hussain, has raised alarms over the growing incidents of tax fraud in Pakistan, which he described as a significant threat to the country’s economic recovery. With annual tax fraud exceeding 700 billion rupees, the issue is largely attributed to the use of fake invoices, undermining the Federal Board of Revenue’s (FBR) efforts.

Mian Zahid Hussain stressed the necessity of digitalization to tackle tax fraud effectively, pointing out that sales tax fraud in Pakistan is notably higher compared to regional countries. Despite system reforms, fake receipts and invoices persist, calling for complete digitalization to combat these practices.

Addressing the business community, Hussain underscored that tax fraud is a recurring problem, despite efforts to control it. While 200 billion rupees were recovered last fiscal year due to court decisions, investigations revealed companies committed tax fraud totaling Rs 3.4 trillion.

He argued for stricter punishments and a rigorous audit system to curb sales tax fraud. Yet, challenges persist as judicial reliefs undermine the FBR’s efforts, with individuals often receiving immediate court relief after arrests.

The business community is concerned about the new powers of the FBR, fearing misuse against taxpayers rather than tax evaders. Hussain warned that without expanding the tax base and tackling fraud, achieving budget targets is unlikely, risking the introduction of a mini-budget.

He further cited IMF data, stating that offshore tax havens cause a global corporate tax revenue loss of $500 to $600 billion annually, with individual-level tax evasion adding another $200 billion loss. In the SAARC region, over 30 percent of tax revenue is lost annually due to fraud, while Pakistan’s underground economy comprises about 60 percent of its total economy. Additionally, 43 percent of registered taxpayers report zero income, exposing flaws in the tax system.