ISLAMABAD: The Asian Development Bank (ADB) has called for urgent tax reforms in Pakistan to broaden the narrow tax base, curb informality and improve compliance, warning that stronger domestic resource mobilisation is critical to achieving fiscal sustainability and reducing the country’s reliance on debt.
“Reforms are essential for fiscal sustainability,” ADB Vice-President for South, Central, and West Asia Yingming Yang said while addressing a High-Level Dialogue on Taxation here on Thursday.
“Modernizing tax administration is not just about strengthening enforcement. It is also about making it easier for taxpayers to comply with, reducing discretion, improving services, and building confidence in the system” he added.
READ MORE: Tax reforms: Programme proposed to secure USD200m ADB loan
Yang said tax and domestic resource mobilization are key to sustainable development. Robust revenue systems empower governments to invest in people, infrastructure, and resilience, reducing dependency on debt. For Pakistan, tackling challenges such as a narrow tax base, informality, and low compliance is vital.
“Reforms are essential for fiscal sustainability, the ADB official added.
Pakistan is at a pivotal moment in its economic reform journey. Significant strides have been made in bolstering economic resilience. Now, the next phase of reform calls for strengthening the country’s capacity to mobilize domestic resources - efficiently, equitably, and sustainably, he added.
Tackling challenges such as a narrow tax base, widespread informality and low compliance was vital for Pakistan, adding that tax reforms were essential for achieving fiscal sustainability, he said, adding that the tax reform agenda was gaining momentum in Pakistan and would help enhance revenue collection, strengthen documentation of the economy and improve data collection for better policymaking and planning.
Strong revenue collection enables the government to invest in its people and provide better public services, including health, education and communications, he said, adding that reforms in the revenue collection system would also help address the country’s fiscal challenges.
The Vice President said the ADB was committed to providing financial and technical assistance, as well as sharing knowledge with Pakistan to help transform its revenue collection system through the modernization of tax administration.
He said the event would also provide an opportunity to discuss policy mechanisms and share international best practices for broadening the tax base and improving revenue mobilization.
Minister of State for Finance Bilal Azhar Kayani said that Pakistan is stepping up efforts to broaden its tax base, reduce the burden on compliant taxpayers and improve the efficiency of tax collection through digitalization and greater engagement with the private sector.
He said that the Prime Minister had given an unprecedented level of attention to reforms at the Federal Board of Revenue, or FBR, holding weekly reviews and examining both strategic and operational aspects of the tax authority’s transformation.
He cited a range of ongoing initiatives, including faceless customs, digital invoicing, track-and-trace systems and a new tax operating model aimed at reducing human intervention in tax assessments and audits.
The level of detail that the Prime Minister goes into to reform the FBR was aimed at ensuring that the tax authority improves both as a revenue collector and in its dealings with taxpayers, he said adding that a key recent initiative was the government’s retailers’ tax scheme, which is intended to bring a larger number of retailers into the formal tax system and broaden the country’s narrow tax base.
Kayani said the government developed the scheme after extensive consultations with retailers and their representative organizations, including discussions about why previous attempts to tax the sector had failed.
He said retailers had raised concerns about informal payments and sought greater protection from such practices in return for participating in the formal tax system. The government subsequently worked with traders to finalize the scheme’s tax rates, penalties, procedures and documentation, including a simplified one-page form in Urdu, he added.
The minister said the consultation process had helped secure support from major trader organizations even before the government formally announced the scheme. He also stressed the importance of sustained dialogue between government agencies and the private sector, saying poor communication had sometimes contributed to failed economic reforms.
The minister said the government had also taken steps to reduce the tax burden on exporters, small and medium-sized businesses and salaried workers. He said the super tax rate for businesses earning between Rs150 million and Rs500 million annually, as well as those earning more than Rs500 million rupees, had been reduced by 2 percentage points, from 10 percent to 8 percent.
For exporters, the combined rate of advance income tax and minimum tax deducted at source had been reduced from 2 percent to 1.25 percent, he said, adding that the government has also retained the final tax regime for information technology exporters while reducing the tax burden on salaried taxpayers, which was a major priority for the Prime Minister.
He said salaried workers had been carrying a disproportionate share of the country’s tax burden because their income was easier for the tax authorities to document and collect.
Copyright Business Recorder, 2026
Comments