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Tax revenue is only 10% of the economy, missing the 17% goal because only 43% of taxpayers file their paperwork.
BY Mahnoor | 09-06-2026
ISLAMABAD: The World Bank has lowered its rating for Pakistan’s $400 million revenue program to “moderately satisfactory.” This is because the country is moving too slowly toward its updated goals of increasing tax collection and making the tax system easier to use.
The Washington-based bank lowered its rating of the loan program again. This shows that raising taxes and helping taxpayers does not need foreign money or experts; it just needs strong political leadership.
The report for the $400 million Pakistan revenue project says progress is ‘moderately satisfactory.’ Previously, the World Bank had given the program a better rating.
In 2019, a five-year loan was taken to raise the tax-to-GDP ratio to 17%. When this plan failed, the World Bank lowered the target to 10% and gave more time to complete it. Reports show that the tax ratio rose from 9% in fiscal year 2024 to 10% by the end of the last fiscal year. However, the Federal Board of Revenue (FBR) collected Rs11.7 trillion, which was Rs1.2 trillion less than they expected to collect.
The report said that tax goals were changed during a recent reorganization. According to the World Bank, the number of people filing income tax returns grew from 4.7 million to 7 million.
However, the report also showed that the Federal Board of Revenue (FBR) struggled to make even registered taxpayers follow the rules. While the number of registered taxpayers rose to 16.2 million between July 2024 and June 2025, only 7 million actually filed their taxes. Despite official claims, only 43% of all registered taxpayers submitted their annual tax returns last year.
The World Bank reported that the FBR has released a full report on tax spending and is expanding its tracking system to a fourth industry. A new single website for GST has launched, covering four provinces and several sectors like telecom and oil.
However, the World Bank noted that data is still missing for two key goals regarding customs and taxpayer help, and some targets are not being met. While the FBR is working to fix these issues, an outside group will review their progress.
Tax officials said the program was scaled back because there wasn’t enough money to meet certain requirements. They couldn’t lower withholding taxes because they rely on them too much; these taxes make up about 60% of the FBR’s total income.
Additionally, the FBR was changing its monitoring methods, which caused delays. There were also problems finding enough local currency to pay for program expenses.
The World Bank reported that equipment has been installed at the main data center, and work is now starting at the backup site. Efforts to improve customs are moving forward through new purchases, and technical experts are now helping with key tasks. The World Bank will review the progress in July 2026.
Additionally, the government is struggling to reduce the number of withholding taxes, which they had already cut to 33. These taxes are a problem because they create extra paperwork for refunds and put too much pressure on taxpayers.
IT companies and service providers are struggling with tax issues from the FBR. Their biggest costs are internet and mobile services, which carry a 15% tax.
Additionally, their customers also deduct tax when paying these companies. This means the same transaction is taxed twice—once when the service is bought and again when it is paid for. While the law allows companies to claim this tax back, the FBR does not issue the refunds.
As a result, a lot of money is stuck with tax authorities, causing serious money shortages for the IT industry. To fix this, the government doesn’t need a $400 million loan from the World Bank; it just needs to decide to either pay back refunds or change the laws. A World Bank report noted that new rules to simplify tax administration have not yet been approved.
The report also mentioned that while some tax laws are being made more similar, there are still no clear service standards available for taxpayers and traders to follow.
The report showed that six years ago, there was no system to track unpaid taxes. Currently, there is no central data on these unpaid amounts.
The World Bank noted that a tracking system was tested at a large tax office in Karachi, and a full system is being prepared for launch. Regarding digital services, the World Bank said people can now file taxes and pay online via mobile. However, taxpayers still cannot use old tax credits to pay off current debts.
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