Sweeping tax reforms aim to recover trillions as Pakistan govt targets top earners

Pakistan’s economic team has unveiled sweeping new structural reforms aimed at recovering trillions of rupees in unpaid taxes from top income earners, signaling a major shift in the government’s approach to fiscal management after years of revenue shortfalls and heavy borrowing.

At a joint press conference in Islamabad, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial disclosed that Pakistan’s income tax gap stands at an estimated PKR 1.7 trillion, with nearly PKR 1.2 trillion owed by the country’s top income earners.

He said the government’s new strategy focuses squarely on enforcement and compliance, rather than introducing new taxes to fill the gap.

“The FBR has been freed from political interference and is now focusing on compliance among high-income groups,” Langrial said.

“Our approach is data-driven and backed by enforcement measures supported by security agencies to ensure that every eligible taxpayer contributes their fair share.”

The chairman ruled out any emergency or mid-year taxation measures during the current fiscal year, emphasizing that the government’s aim is to expand the tax base and improve collection efficiency instead of burdening compliant taxpayers.

He reported a notable rise in Pakistan’s tax-to-GDP ratio, which has increased by 1.5 percentage points during the year. The number of income tax filers has grown by 18% to reach 5.9 million, while the FBR’s share in overall revenue has improved from 8.36% to 10.33%.

Langrial projected that the overall revenue-to-GDP ratio will rise by 5% over the next three years, with provinces expected to contribute about 1.5% of that growth.

“These reforms are part of a comprehensive effort to create a fair, transparent, and efficient taxation system,” Langrial said, noting that digital monitoring, improved data integration, and cross-agency coordination will be central to the new enforcement push.

Finance Minister Muhammad Aurangzeb, who joined Langrial at the briefing, said the reforms were part of a broader economic stabilization plan designed to shift Pakistan away from what he described as “a culture of short-term fixes” toward sustained, long-term structural change.

“Our macroeconomic stability has improved significantly,” Aurangzeb said. “The government’s focus is now on addressing the root causes of fiscal slippage—tax evasion, inefficiencies in the energy sector, and an unsustainable pension system—rather than relying on temporary solutions.”

Aurangzeb said the new reform program would build on the progress achieved under Pakistan’s recent engagement with the International Monetary Fund (IMF), which helped stabilize the economy and restore investor confidence.

He added that all three major international rating agencies had upgraded Pakistan’s outlook in recent months, reflecting improved fiscal discipline and policy continuity.

“These reforms are designed to consolidate our recent gains and sustain long-term growth under a whole-of-government approach,” he said.

"We are grateful for the continued support of our international partners, including China, the United States, and Gulf countries, which have stood by Pakistan during challenging times.”

Analysts say the government’s renewed emphasis on enforcement could mark a turning point in Pakistan’s long struggle to boost tax revenues, which remain among the lowest in South Asia as a share of GDP. Despite decades of reform attempts, less than 3% of the population currently files income taxes.

However, experts caution that enforcement alone may not be enough. “While targeting top earners is a good start, meaningful reform also requires simplifying the tax code, reducing exemptions, and building trust with taxpayers,” said an economist.

For now, officials insist that the reforms are already yielding results.

Langrial said the FBR’s revenue collection and compliance indicators had shown steady improvement over the past several months, with significant contributions coming from previously under-taxed sectors such as real estate and retail.

Aurangzeb said the government remained confident that the new policies would help Pakistan achieve fiscal sustainability without resorting to ad hoc tax measures.

“We are moving in the right direction,” he said. “Our objective is to create a fair system that rewards compliance and ensures stability for years to come.”