AGP report shows dip in tax-to-GDP ratio for FY2023–24

• Most new filers enter for perks, not payment: AGP
• Tax-to-GDP ratio sinks to 8.7% in 2023–24.
• AGP says many with luxury assets file nil returns.

ISLAMABAD: Despite a 76% surge in the number of income tax return filers during the tax year 2024, the actual increase in tax revenue remained limited to just 30%.

The Auditor General of Pakistan (AGP) attributes this discrepancy to a large number of individuals filing returns merely to avail reduced tax rates offered to filers on transactions such as the sale or purchase of property and vehicles, without paying any meaningful tax.

The AGP report, which scrutinises the performance of Federal Board of Revenue (FBR)’s Broadening of Tax Base (BTB) wing, notes that the increase in tax filers from 2.959 million in 2023 to 5.215 million in 2024 has not translated into a proportional rise in revenue.

Most new filers, the audit points out, seem to be entering the tax system for procedural benefits rather than fulfilling any real tax obligations.

The report also highlights a disturbing trend in the country’s tax-to-GDP ratio, which has fallen from 10.6% in 2016-17 to 8.7% in 2023-24, despite the availability of extensive third-party data with the FBR. The Malomaat Portal, hosted on the IRIS system, includes records of individuals with industrial electricity and gas connections, high-end vehicles, and frequent foreign travel — all indicative of significant earning capacity — yet many such individuals continue to file nil returns and contribute no taxes.

The report said that several serious shortcomings first flagged in a 2016-17 special audit report remain unresolved to this day. These include:

• Non-registration of 1,807 individuals with industrial electricity connections under the Sales Tax Law.
• Failure to ensure tax return filing by 702 holders of industrial electricity connections and 992 gas connection holders.
• No registration or return filing by 744 individuals owning motor vehicles above 1500cc engine capacity.

While the FBR maintains that its BTB wing has undertaken consistent efforts including new policies and enforcement actions to expand the tax net, the audit notes that no verifiable progress has been reported. The Departmental Accounts Committee (DAC), in its January 2025 meeting, instructed the department to submit a comprehensive response and have its claims verified by the Audit within 15 days. However, no such update was shared before the finalisation of the current report.

The AGP has recommended urgent steps, including:

• Compulsory registration of potential taxpayers using data from utility connections, vehicle registration, and foreign travel records.
• Providing auditors access to key data portals under mutually agreed protocols.
• Strengthening internal controls and improving inter-agency coordination with Nadra, motor and property registrars, and other withholding agents to enforce compliance.

Originally published in The News