Why Pakistan's Tax System Rewards Evasion | Senior Economists on the Tax Framework

Pakistan's tax system punishes the people who already pay their dues, while the most powerful sectors get away with paying almost nothing. In this session, four of Pakistan's most senior economists explain why decades of tax reforms have failed, and what an honest fix would actually require. This panel was held as part of the National Tax Payers Convention 2026, organized by Prime Institute and Tax Payers Alliance Pakistan, moderated by Dr. Ali Salman (CEO, Prime Institute), with Dr. Kaiser Bengali, Dr. Nadeem Ul Haque, Dr. Vaqar Ahmed, and Sakib Sherani. Key issues discussed: The tax system squeezes the salaried class and formal industry while largely sparing agriculture, retail, and real estate, and the poor end up paying more through everyday consumption taxes than the wealthy pay through direct ones Pakistan's tax code is full of complex exemptions and special orders (SROs) that only specialists can navigate, a complexity that creates room for tax officials to extract bribes, not simplify compliance A standard 18% GST rate gives anyone who stays undocumented an instant cost advantage over businesses that comply. Economists argue that a simpler rate closer to 10% would make evasion less worthwhile than compliance Heavy reliance on withholding taxes has turned private businesses into unpaid tax collectors for the government, a hidden cost never accounted for in the federal budget Since the 18th Amendment, a business operating nationally must deal with five separate revenue authorities, leading to double taxation in services and higher compliance costs Provinces receive 57.5% of the shared federal tax pool but largely refuse to tax agriculture or urban property, leaving major revenue sources untouched for political reasons The "non-filer" category lets people pay a small penalty and stay legally outside the tax net. Economists argue that this status should be scrapped so that anyone with a national ID is automatically a taxpayer Pakistan's tax-to-GDP ratio has stagnated for decades because policy keeps squeezing existing taxpayers harder instead of bringing new ones into the net What needs to change: A full rewrite of the tax code instead of annual "tinkering" through the Finance Bill A simpler, flatter tax system with far fewer exemptions One unified tax authority or portal instead of five separate provincial and federal systems Automated tracking of wealth through spending, international travel, electricity usage, luxury vehicle purchases, rather than relying on self-declared filing status Panellists: Dr. Ali Salman - Moderator; CEO, Prime Institute Dr. Kaiser Bengali - Senior Economist Dr. Nadeem Ul Haque - Former Vice Chancellor, PIDE / Senior Economist Dr. Vaqar Ahmed - Senior Research Fellow, Prime Institute / Senior Economist Sakib Sherani - Founder & Chief Executive, Macro Economic Insights (Pvt) Ltd. / Senior Economist Explore More from PRIME: 🔹 Watch our full Liberty Chowk Playlist:    • Liberty Chowk   🔹 Part 1:    • China Eliminated Poverty, Why Can't Pakistan?   Follow Us On Social Media Stay connected for real-time policy updates: Twitter:   / primepk   Facebook:   / primeinstitute   LinkedIn:   / primeinstitute   Instagram:   / primeinstitutepk   Subscribe to our Monthly Newsletter: https://substack.com/@primethinktank For Collaborations or Press Inquiries: [email protected] About Us: The Policy Research Institute of Market Economy is dedicated to generating high-quality research on market-oriented solutions for Pakistan's economic challenges. Our goal is to inform public policy and foster a deeper understanding of the economy.