The tax gap in Pakistan has surged to an alarming Rs7 trillion for the fiscal year 2024, marking a dramatic increase from Rs1.289 trillion in FY22. This substantial rise underscores the critical need for enhanced tax compliance and effective measures to meet International Monetary Fund (IMF) targets.
The tax gap represents the difference between taxes owed and taxes actually paid. This significant increase has prompted the Federal Board of Revenue (FBR) to prepare a comprehensive reform plan aimed at tackling the issue.
The FBR’s proposed reform package, expected to be presented to the Prime Minister next week, outlines several key initiatives to address the growing tax gap:
- Mandatory Digital Invoicing: The introduction of mandatory digital invoicing for all manufacturers within the next four to five months to combat tax evasion.
- Enhanced Desk Audits: Engagement of 2,000 to 4,000 Chartered Accountants (CAs) and auditors to conduct thorough desk audits of over half of all tax returns.
- Citizen Monitor Scheme: A new scheme to reward consumers who report non-digital receipts from retailers.
- Performance-Based Incentives: Introduction of performance-based bonuses for tax officers to improve efficiency.
- IT Infrastructure Upgrades: Expansion of IT systems and recruitment of skilled staff to support tax administration.
The customs duties tax gap has increased to Rs300 billion, and smuggling-related revenue losses are estimated at Rs700 billion. The FBR will seek parliamentary approval for additional measures once the reform package receives the Prime Minister’s endorsement.
The FBR is also focusing on improving tax collection in key sectors, including textiles, tobacco, sugar, and cement. The upcoming reforms aim to address the root causes of the tax gap, enhance transparency, and boost overall tax compliance across the country.
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