At a time when Pakistan is grappling with a fiscal crisis and an urgent need to increase revenue and broaden its tax base, a new audit report has revealed alarming levels of tax evasion and institutional negligence. The Auditor General of Pakistan’s latest report for the fiscal year 2024–25 paints a grim picture of how hundreds of billions of rupees are being lost annually due to weak enforcement, poor monitoring, and lack of accountability within the Federal Board of Revenue (FBR).
The comprehensive report uncovers thousands of cases involving under-reporting of income, bogus expense claims, concealment of earnings, misuse of tax credits, and outright failure to file tax returns. These violations are made worse by the FBR’s chronic inability to respond effectively, allowing widespread evasion to continue virtually unchecked.
One of the most significant findings is the massive evasion of super tax, which is levied on individuals and entities earning over Rs150 million annually. The audit found that 1,026 high-income taxpayers failed to pay super tax, causing a loss of Rs167.9 billion to the national exchequer. Despite having the authority to enforce payments, the FBR initiated almost no effective action. The actual amount recovered was a mere Rs48 million, which is only 0.02% of the total liability — a failure the report terms “alarming.”
Another glaring issue was the misuse of business expense claims. A total of 1,084 taxpayers claimed inadmissible deductions, including lease finance charges and expenses where withholding tax had not been deducted — clear violations under Section 21 of the Income Tax Ordinance. These irregularities alone resulted in a shortfall of Rs149.5 billion, yet most of the cases remain unresolved.
The report also highlights serious lapses in the collection of withholding taxes, where 1,344 agents failed to deduct or deposit tax from payments made to suppliers and contractors. This contributed to an additional loss of Rs45.3 billion. While the law allows for holding such agents personally liable, the FBR did not enforce this provision. Only Rs2.4 million was recovered.
One of the most alarming patterns documented was the use of fake or flying invoices to claim fraudulent sales tax refunds or input adjustments. In 375 cases, taxpayers used invoices issued by blacklisted or suspended firms to obtain refunds under the Sales Tax Act, leading to a Rs123.5 billion loss. Many of these cases are either still under inquiry or haven’t even been addressed by tax officials.
Taxpayers also managed to hide income by understating sales or inflating purchases in their returns, with discrepancies flagged between sales tax and income tax data. In 1,181 cases, this concealment led to an evasion of Rs54.2 billion. Additionally, 992 sales tax filers were found to have hidden sales or declared suspiciously low production levels, evading Rs36 billion more — all without substantial follow-up action from the FBR.
Shockingly, the report discovered that 14,697 registered taxpayers, all possessing National Tax Numbers, failed to file returns at all. These cases should have automatically triggered penalties under Section 182, amounting to Rs26.6 billion. Yet the FBR recovered only Rs0.05 million, revealing a near-total collapse of enforcement.
The audit also found that even where tax liabilities had already been assessed, Rs62.3 billion remained uncollected in 1,571 cases. Similarly, Rs23.3 billion in income declared under “other sources” went untaxed in 1,764 cases — again, with little or no recovery action taken.
The 392-page audit offers detailed accounts of tax evasion, systemic flaws, and FBR’s institutional failure to act despite repeated warnings. Similar irregularities were noted in audit reports from 2019 to 2024, yet the same issues continue to resurface, with no significant improvement or accountability for field officers.
The Auditor General warns that this continued failure is not just a bureaucratic lapse — it represents public money that could have funded education, healthcare, infrastructure, and public safety. The report calls for urgent reforms, including:
- Swift recovery of assessed taxes
- Time-bound and monitored legal proceedings
- Strengthened internal and desk audit systems
- Integration of provincial and federal databases
- Automated systems to block fraudulent refund claims linked to blacklisted entities
The audit ends with a stern caution: “The recurrence of the same irregularity is a matter of serious concern.” Without immediate action, Pakistan’s efforts to strengthen its economy and raise revenues will remain undermined by an enforcement system that continues to look the other way.
