For the first time, the Federal Board of Revenue (FBR) has officially admitted that a huge tax gap of Rs. 1.289 trillion exists in the tax collection system of Pakistan, sources exclusively revealed to ProPakistani on Monday.
According to the sources, the FBR has compiled a report on the tax gap analysis for 2022. The overall tax gap of Rs. 1,289 billion during 2022 comes to around 26 percent of the potential collectible tax under the current regime.
Sources further revealed that the FBR has calculated a sales tax gap of Rs. 519 billion which is 24 percent of the potential collectible tax under the current sales tax regime. The income tax gap is Rs. 730 billion which is 31 percent of the potential collectible tax under the current income tax regime. The customs duty gap is Rs. 40 billion which is 11 percent of the potential collectible customs duty.
The FBR plays a central role in revenue collection for the federal government but despite its best efforts in tax collection, a significant portion of tax revenue remains unpaid. This gap in tax revenue is attributed to tax evasion and avoidance practices. The tax loss incurred due to noncompliance is ultimately shifted to those who pay taxes.
According to international practices, these tax gap estimates are calculated by involving third-party data which may be incompatible and subject to time lag. Existing literature suggests such estimates could be used for long-term policy design, rather than as short-term revenue gain measures at the operational level, FBR officials explained.
The tax gap is broadly defined as the difference between what taxpayers should pay and what they actually pay. This report provides tax gap estimates to gauge the tax compliance of taxpayers with their federal tax obligations.