How NADRA’s database helped Pakistan modernize financial aid and taxation

Pakistan’s National Database and Registration Authority (NADRA) emerged as a global leader in national identity management due to the vision of former President General (retd) Pervez Musharraf, according to former NADRA chairman Ali Arshad Hakeem.

Speaking on Kamran Khan’s podcast, Hakeem detailed how NADRA evolved from a government initiative into a commercially successful entity. He credited his predecessors, Gen. Zahid Ehsan and Brig. Saleem Moeen, for laying the groundwork and establishing the database structure.

“When I joined NADRA, it was a well-structured organization but wasn’t generating revenue,” Hakeem said. “Coming from a commercial background, I saw the potential to transform it into a self-sustaining entity.”

Hakeem said NADRA became one of the first national identity organizations to commercialize its database, a move driven by emerging challenges, particularly during military operations in Pakistan’s tribal regions.

Using NADRA for crisis management

A pivotal moment in NADRA’s journey came in 2009, when the Pakistani military launched Operation Rah-e-Rast in Swat against militant groups. The government needed a transparent method to distribute aid to displaced residents, avoiding corruption and inefficiencies.

“We had the database, a franchise network, and banks capable of creating virtual accounts,” Hakeem said. “Through an ordinance, the State Bank of Pakistan allowed opening level-zero accounts based on NADRA verification.”

Using Gold, Visa, and Standard Cards, NADRA facilitated the disbursement of PKR 20,000 per person. The initiative helped banks realize the benefits of handling microtransactions while demonstrating to the government that financial aid could be distributed transparently.

In 2010, NADRA launched the Watan Card program to assist flood victims. The system gained international recognition when the Friends of Pakistan group donated $700 million, ensuring that aid reached one million people without scandal.

Surpassing India’s Aadhaar

Hakeem asserted that NADRA’s database remains superior to India’s Aadhaar system in security and operational capabilities.

“I know what India does and what we do—our system is certainly better,” he said. “The challenges we overcame were much bigger than theirs.”

He added that The Economist had recognized NADRA’s innovative approach, publishing an article titled The Plastic Prop, which highlighted how the database transformed cash distribution.

Even today, he said, NADRA remains a critical institution, providing data analysis for national security, taxation, and social welfare programs.

FBR’s resistance to taxation reforms

After leading NADRA, Hakeem became chairman of the Federal Board of Revenue (FBR), where he attempted to use the NADRA database to expand the tax net. He proposed using financial indicators such as foreign travel, firearm ownership, and property records to identify high-income individuals evading taxes.

“If we could find the poor for the Benazir Income Support Program, we could also identify the wealthy,” he said.

However, the proposal met resistance within FBR. Hakeem suggested a simplified tax scheme, requiring all citizens to pay a fixed amount without filing detailed tax returns for the first three years.

“Our idea was to get people into the tax net and gradually transition them to a formal system,” he explained. “The plan was to start with a flat tax of PKR 30,000, increasing slightly each year. No questions asked.”

According to Hakeem, the resistance stemmed from a bureaucratic mindset that had controlled tax collection since 1947. “FBR was collecting taxes from 900,000 people. How could they suddenly handle 5 million?” he said. “The old system wasn’t designed for such a shift.”

He noted that while India has over 86 million taxpayers, Pakistan still lags with only 5 to 5.5 million filers, far below its potential.

Breaking free from outdated bureaucracy

Hakeem argued that Pakistan’s bureaucratic system, particularly in tax collection, remains stuck in an outdated clerical model.

“In the 1980s and 1990s, Pakistan built layer upon layer of regulations that stifled economic growth,” he said. “Other countries moved forward—India removed 5,000 redundant laws, and Dubai automated its entire bureaucracy.”

He emphasized the need for digitization and simplification of compliance procedures to encourage broader participation in the tax system. “We created this clerical system, and now we must dismantle it,” he said. “If Dubai and India could do it, we can too.”

Hakeem said the key to sustainable reform lies in shifting away from excessive regulation and focusing on automation and transparency.

“NADRA showed that when institutions modernize, they can serve the people effectively,” he said. “The same must happen in taxation.”