Audit report reveals Rs789.92 billion tax gap, major discrepancies in fiscal governance

The Auditor General of Pakistan’s report for 2024-25 has uncovered a major tax gap of Rs789.92 billion, driven by widespread discrepancies in tax compliance and enforcement, according to a news report.  

The largest shortfall was in income tax, with a gap of Rs480.19 billion, followed by a Rs212.12 billion shortfall in sales tax. Customs duties contributed Rs40 billion to the deficit, while Federal Excise Duty had a relatively minor discrepancy of Rs615 million. These figures reflect significant challenges in tax collection and governance across various sectors.

The report also highlighted Rs57 billion in discrepancies between net revenue figures provided by the Federal Board of Revenue (FBR), the State Bank of Pakistan, and the Accountant General Pakistan Revenues (AGPR), underscoring inconsistencies in fiscal accounting.

Notable revenue losses included Rs167.88 billion in under-collected super tax, Rs149.57 billion from inadmissible expense claims, and Rs62.32 billion from unrecovered tax demands. 

Other shortfalls included Rs22.87 billion in minimum tax, Rs45.39 billion in withholding tax, and Rs9.66 billion in default surcharges. Additionally, Rs6.52 billion in unpaid income tax on sales to retailers and Rs6.79 billion in questionable refund claims were noted.

The report also flagged Rs54.19 billion in income concealment, Rs23.28 billion in non-taxation of other income sources, and Rs26.59 billion in penalties not imposed for late returns. Other discrepancies included Rs13.63 billion in excess withholding tax adjustments and Rs10.68 billion in unpaid Workers Welfare Fund contributions.

Irregular tax credits, including Rs251.23 million for donations and Rs1.61 billion for investments, contributed further to financial strain. Shortfalls in revenue collection were also observed for brokerage and commission income (Rs2.52 billion), salary income (Rs3.12 billion), dividends (Rs2.15 billion), and property income (Rs1.02 billion).

The sales tax sector faced Rs123.59 billion in losses due to inadmissible input tax credit adjustments from fake invoices. Further losses were noted in the customs sector, including Rs12.60 billion tied up in confiscated goods, Rs9.35 billion in unencashed financial instruments, and Rs3.29 billion from un-exported finished goods.

The report’s findings underscore serious inefficiencies within Pakistan’s tax collection system, highlighting the urgent need for reforms, better enforcement, and improved oversight to close these significant revenue gaps and strengthen fiscal governance.