Audit highlights 76% rise in income tax filers fails to boost revenue, tax-to-GDP ratio drops to 8.7%

Despite a 76% increase in the number of income tax return filers in the tax year 2024, tax revenue grew by just 30%, while the country’s tax-to-GDP ratio dropped to 8.7% from 10.6% in 2016-17, according to the Auditor General of Pakistan’s (AGP) report.

The AGP attributes this discrepancy to many individuals filing returns primarily to benefit from reduced tax rates on transactions like property and vehicle sales, without paying any meaningful taxes.

The report, which evaluates the Federal Board of Revenue’s (FBR) Broadening of Tax Base (BTB) wing, notes that the number of tax filers increased from 2.959 million in 2023 to 5.215 million in 2024, but this did not lead to a proportional rise in revenue.

Most of the new filers, according to the audit, seem to be entering the tax system mainly for procedural benefits, rather than fulfilling actual tax obligations.

Additionally, despite extensive third-party data available to the FBR, the report shows that many high-income individuals—identified through industrial electricity and gas connections, high-end vehicles, and frequent foreign travel—continue to file nil returns and contribute no taxes.

The audit also reveals that several issues flagged in the 2016-17 special audit report remain unresolved, including the non-registration of 1,807 individuals with industrial electricity connections, failure to ensure tax return filing by 702 industrial electricity connection holders, and 992 gas connection holders. The report also notes the absence of registration or filing for 744 individuals owning motor vehicles above 1500cc.

While the FBR claims its BTB wing has taken various steps to expand the tax base, the audit found no verifiable progress. The Departmental Accounts Committee (DAC) had instructed the FBR to submit a detailed update by January 2025, but no such update was received before the report’s completion.

The AGP has recommended several measures, including mandatory registration of potential taxpayers using utility, vehicle registration, and foreign travel data; granting auditors access to key data portals; and strengthening collaboration with Nadra, motor and property registrars, and other withholding agents to ensure better compliance.