World Bank Criticizes Pakistan’s ‘Unfair and Absurd’ Tax System

The World Bank has described Pakistan’s taxation system as profoundly “unfair and absurd,” suggesting that the growing strain on the salaried class could be alleviated by broadening the tax base to encompass all income streams. This perspective was shared in a recent report.

The financial institution advocated for incorporating the real estate sector into the tax framework, guaranteeing precise recording and taxation, and streamlining the tariff structure, as the temporary benefits are causing damage to long-term revenue prospects.

During a discussion entitled “Charting Pakistan’s Fiscal Trajectory: Enhancing Transparency & Trust,” Nadeem Javaid, Vice-Chancellor (VC) of the Pakistan Institute of Development Economics (PIDE), observed that a substantial portion of development funds, around 40%, is lost to commissions. He stated that every bill requires a 5% to 7% share for the Accountant General Pakistan Revenues (AGPR), a widely acknowledged reality.

Additional participants at the PIDE conference session emphasized that Pakistan must overhaul its taxation approach by growing the tax base, completely digitizing procedures, and lightening the load on salaried individuals.

Tobias Haque, the World Bank’s chief country economist, lauded the provinces’ implementation of the Agriculture Income Tax (AIT) as a move in the right direction. He highlighted that precise documentation and taxation within the property market are now crucial.

Haque stated that easing the tax burden on the salaried segment can be achieved through digitalization and expanding the tax base to include all sources of income.

He remarked that it is “absurd” that, in a nation of 240 million, only 5 million individuals file tax returns, while a considerable amount of income is generated through the regressive General Sales Tax (GST). He added that with such a limited number of return filers, Pakistan’s tax system is unjust and unsustainable.

Dr. Ali Salman, Executive Director of the Policy Research Institute of Market Economy (PRIME), recommended lowering the quantity of withholding taxes (WHTs), mentioning that 45 of the existing 88 WHTs generate less than Rs1 billion annually. He stressed the necessity for simplification and clarity, noting that the Federal Board of Revenue (FBR) presently collects Rs1.2 trillion annually via WHTs.

The panelists concurred that Pakistan has not yet accomplished meaningful tax digitization, in spite of the availability of diagnostics and tools, owing to institutional disconnects, political opposition, outdated legal structures, and a deficiency in administrative motivation. They emphasized that system integration from start to finish, access to real-time data, and automated workflows are crucial for effective digital transformation.

A recurring concern was the weakening of public confidence in the tax system, driven by inconsistent policies, limited transparency, and a biased tax burden. Speakers underscored that integrated digital infrastructure, simplified tax codes, updated labor regulations, and performance-based incentives are needed to revive taxpayer confidence.