World Bank Calls Pakistan’s Tax System ‘Unfair,’ Urges Broader Reforms to Ease Burden on Salaried Class
Islamabad, April 18, 2025 – The World Bank has described Pakistan’s current tax system as “unfair and absurd,” urging the government to broaden the tax base and bring all sources of income under taxation to ease the growing financial burden on the salaried class.
The remarks were made during a session titled “Charting Pakistan’s Fiscal Trajectory: Enhancing Transparency & Trust” held at the Pakistan Institute of Development Economics (PIDE). Experts and economists emphasized the urgent need for comprehensive tax reforms, digitisation, and improved transparency.
Urgent Need to Expand the Tax Base
Tobias Haque, the World Bank’s Lead Country Economist, highlighted the need to accurately document and tax the property sector, which remains underreported. He commended the imposition of Agriculture Income Tax by the provinces, calling it a positive step toward fair taxation.
“With only five million tax return filers in a population of 240 million, the system is unsustainable,” said Haque. He stressed that digitalisation and a broadened tax net that includes all income streams could help distribute the tax burden more equitably and reduce reliance on the regressive General Sales Tax (GST).
Concerns Over Development Spending and Withholding Taxes
During the session, PIDE Vice-Chancellor Dr. Nadeem Javaid raised serious concerns about the misuse of development funds, claiming that up to 40% of allocated funds are lost through commissions. He alleged that a share of 5% to 7% is often required for clearing payments through the Accountant General Pakistan Revenues (AGPR) — a practice widely known but rarely addressed.
Meanwhile, Dr. Ali Salman, Executive Director of the Policy Research Institute of Market Economy (PRIME), called for reducing the number of withholding taxes (WHTs), noting that out of 88 existing WHTs, 45 generate less than Rs1 billion annually. He urged for a simpler and more transparent tax system, pointing out that WHTs currently contribute around Rs1.2 trillion to annual revenue.
Challenges in Digital Transformation
The panellists agreed that despite the availability of advanced tools and diagnostics, Pakistan has been slow to adopt meaningful tax digitisation. They attributed this to political resistance, outdated legal structures, and a lack of administrative will. Experts stressed that real reform would require automated systems, real-time data access, and end-to-end integration of tax processes.
Restoring Trust in the System
Speakers at the event highlighted a growing lack of public trust in Pakistan’s tax system, fueled by inconsistent policies, complex regulations, and a perceived bias against the middle class. To rebuild confidence, experts recommended simplified tax codes, modern digital infrastructure, updated labor laws, and performance-based incentives for tax officials.
The session concluded with a call for bold, coordinated reforms to create a fair, efficient, and inclusive taxation system that supports long-term economic growth and public confidence.
