Pakistan stands at a pivotal moment in its long, uneven struggle to build a credible tax system. While the government boasts recent improvements in revenue collection, the fiscal reality tells a different story.
Revenues have risen mainly because taxes have been increased repeatedly, not because the system has been reformed or modernised. Expenditure remains bloated, patronage persists, and unproductive spending continues to climb. The result is a tax burden that is rising without a corresponding improvement in public services or state capacity.
Recent public statements by national political leaders and business bodies reflect this growing frustration. Bilawal Bhutto-Zardari has argued that Pakistan’s fiscal crisis requires structural reform rather than constantly resorting to heavier taxation. The Pakistan Business Council has warned that repeated tax hikes and coercive enforcement measures are eroding the formal sector.
Senior officials associated with the Special Investment Facilitation Council, including Lt Gen Sarfaraz Ahmed, have publicly stressed that high corporate taxes inhibit investment and industrial growth. Yet, nearly all these debates miss the fundamental point: Pakistan’s fiscal crisis is not a revenue problem alone; it is equally a spending problem.
Instead of slimming down the state and cutting wasteful expenditure, the government has taken the politically easier route: ever-increasing taxes
The federal government has been unwilling to reduce its own footprint. Subsidies and grants to members of the national and provincial assemblies continue in various forms. Entire layers of administrative structures remain unreformed. State-owned enterprises drain billions every year.
Instead of slimming down the state and cutting wasteful expenditure, the government has taken the politically easier route: ever-increasing taxes, arbitrary enforcement measures, and pressure on the already compliant segments of the economy. This approach is neither fair nor sustainable.
A genuine tax reform agenda must begin with a unified national identity and tax framework. Pakistan already has the basic infrastructure: every citizen possesses a CNIC. The tax number should simply be the same. Once identity is unified, financial institutions — banks, insurers, brokers, funds — should be required to connect their reporting systems directly to this tax identity. At year-end, they should transmit interest, dividend, and profit distribution data automatically to the Federal Board of Revenue.
What was once a formidable task is now much more simple. Modern data systems can now standardise, clean, and verify millions of financial records in real time. Automated pipelines detect missing CNICs, incorrect classifications, duplicate accounts and anomalous patterns within seconds. Many Asian countries already use technology to ensure accurate third-party reporting and to reconcile millions of annual financial transactions. Pakistan has no technical barrier to doing the same.
Identity accuracy is a foundational requirement. Chequebooks, debit cards and other instruments should not be handed over counters; they must be delivered to verified addresses, with any change requiring documentation. This is not bureaucracy for its own sake; it is a frontline defence against benami accounts and untraceable transactions. Banks worldwide use automated address verification, pattern recognition and anomaly detection to catch fake or recycled addresses. Pakistan’s financial sector can adopt these tools without adding friction for legitimate users.
Once identity and financial data are integrated, Pakistan can move to pre-populated tax returns — automatically filled with salary, dividend, and interest income, as well as withholding tax data. The taxpayer’s task would be to review and confirm, eliminating the traditional ‘filing’ process, as is the case in many countries. Technology can classify income, detect omissions, anticipate likely deductions, and prepare ready-to-review drafts for millions of people. This transforms taxation from an ordeal into a routine administrative step.
Digital analytics can also deliver targeted and fair enforcement, replacing the broad, punitive campaigns that have defined Pakistan’s approach for decades. Instead of harassing the entire taxpayer base, automated systems can match lifestyle patterns, banking data, property records and consumption behaviour with declared income. The objective is fairness, not intimidation: to identify clear mismatches while leaving compliant citizens undisturbed.
Maintenance — often a weak point in Pakistan’s public sector — can also be automated. Data quality checks, continuous monitoring, and self-correcting workflows reduce the need for large administrative teams and minimise room for discretion. The system can detect when a bank fails to report a category of income or when data gaps emerge and can flag them instantly, rather than months later.
A fully digital tax regime would drive economic formalisation. When bank accounts, investment accounts, mobile wallets and property records all feed into a unified tax identity, operating outside the formal economy becomes costly. Automated systems can flag discrepancies between declared income and high-value consumption, such as luxury vehicles or overseas travel, ensuring fair contribution from those with significant financial capacity.
None of this is technologically difficult. Pakistan’s banking system is modern, its digital identity backbone is robust, and the cost of automation has fallen. What is missing is the political will to shift from a discretionary, coercive tax administration to an automatic and transparent system.
But even the most advanced digital system will fail if the state refuses to reform itself. A country cannot tax its way out of a fiscal crisis while preserving an oversized and inefficient government. Real reform requires cutting unproductive expenditure, reducing the size of government, rationalising ministries, and eliminating political grants to national and provincial assembly members. Without these steps, tax reforms will only squeeze the same limited base harder.
The writer is the former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’.
Published in Dawn, The Business and Finance Weekly, December 22nd, 2025
