Weak tax enforcement

LAHORE: The notion that Pakistan’s corporate sector is fully tax compliant is a myth. As of September 2023, out of over 100,000 companies registered with the Securities and Exchange Commission of Pakistan (SECP), only approximately 50,000 complied with tax filing requirements, reflecting a significant compliance gap.

A deeper analysis reveals that the majority of tax contributions come from just 100 corporate entities. Among the top taxpayers are public sector enterprises (PSEs) such as Pakistan State Oil, which leads the list, Oil and Gas Development Company Limited, Pak-Arab Refinery Limited and Pakistan Petroleum Limited.

Other major contributors include private sector giants like Pakistan Tobacco Company, Indus Motor Company, and banks such as United Bank Limited (UBL), Standard Chartered Bank, Habib Bank Limited, and the state-owned National Bank of Pakistan. Remarkably, five of the top 10 corporate taxpayers are public sector companies.

The corporate sector’s lack of tax compliance creates a ripple effect, emboldening non-registered entities to evade taxes as well. In stark contrast, the salaried class remains one of the most compliant taxpayer groups. During the fiscal year 2023-24, salaried individuals paid a record Rs368 billion in income tax. In the first quarter of FY2024-25, their contributions amounted to Rs111 billion, which is a staggering 1,550 per cent more than the taxes paid by traders, a group often criticised for tax evasion.

Retailers, for instance, contributed Rs17.3 billion in income tax in FY2023-24, largely through a 0.5 per cent advance tax on sales. However, in the first quarter of FY2024-25, the Federal Board of Revenue (FBR) collected only Rs6.7 billion from goods supplied to traders. In the same period, traders paid approximately Rs7 billion in taxes, a figure dwarfed by the salaried class’s contributions.

The transportation sector’s specific tax contributions remain unavailable, but the government has introduced a 0.5 per cent turnover tax on petroleum dealers to enhance revenue from this segment. These statistics underscore the disproportionate tax burden borne by salaried individuals compared to other sectors, particularly traders.

Addressing the tax compliance gap requires efforts to broaden the tax base and ensure equitable contributions across all economic sectors. The corporate sector’s failure to meet tax obligations stems partly from poor planning and a tendency to prioritise luxury over financial discipline. Often, corporate sponsors maintain extravagant lifestyles, even when their companies face financial distress, leaving employees unpaid.

Such practices not only sow discontent among employees but also highlight a systemic lack of accountability. Corporate leaders must recognise that their businesses require both their financial commitment and their active involvement, especially during challenging times. Without equitable and effective tax policies, Pakistan’s fiscal challenges will continue to grow, leaving compliant taxpayers to shoulder an unfair burden.