ISLAMABAD: The Auditor General of Pakistan’s report for 2024-25 has revealed alarming tax shortfalls and widespread accounting discrepancies, resulting in a tax gap of Rs789.92 billion. The findings indicate significant weaknesses in tax compliance and enforcement, with the most substantial gaps found in income tax, sales tax, customs duties, and federal excise duties.

The income tax gap was the largest, amounting to Rs480.19bn, followed by a Rs212.12bn shortfall in sales tax. Customs duties contributed Rs40bn to the deficit, while a relatively minor discrepancy of Rs615m was identified in the Federal Excise Duty. These figures underline systemic failures in tax collection and governance across multiple sectors.

The Auditor General also reported Rs57bn 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), highlighting significant inconsistencies in fiscal accounting across key institutions.

Among the largest revenue losses identified were Rs167.88bn in under-collected super tax, Rs149.57bn lost due to inadmissible expense claims, and Rs62.32bn from unrecovered tax demands. Additional shortfalls included Rs22.87bn in minimum tax, Rs45.39bn in withholding tax, and Rs9.66bn in default surcharges. Furthermore, Rs6.52bn in unpaid income tax on sales to retailers and Rs6.79bn in questionable refund claims reflect ongoing inefficiencies in tax administration.

Auditor General’s report paints grim picture of fiscal governance

The report also identified substantial losses due to income concealment (Rs54.19bn), non-taxation of other income sources (Rs23.28bn), and the failure to impose penalties for late or non-filing of returns (Rs26.59bn). Other notable shortfalls included Rs13.63bn in excess withholding tax adjustments, Rs10.68bn in unpaid Workers Welfare Fund contributions, and Rs9.24bn in inadmissible claims related to depreciation and initial allowance.

Irregular tax credits, including Rs251.23m for donations, Rs1.61bn for investments, and Rs2.48bn for general claims, added to the financial strain. Additional gaps in revenue collection were noted for brokerage and commission income (Rs2.52bn), salary income (Rs3.12bn), dividends (Rs2.15bn), and property income (Rs1.02bn).

The report also highlighted Rs2.40bn lost due to incorrect tax rates, Rs805.79m from unlevied Alternative Corporate Tax, and Rs2.55bn from irregular amendments in assessment orders.

The sales tax sector also suffered significant losses, with Rs123.59bn lost due to inadmissible input tax credit adjustments based on fake invoices from suspended or blacklisted taxpayers. Other shortfalls included Rs8.54bn from non-apportionment of input tax and Rs35.97bn due to concealed sales.

Additionally, Rs7.48bn was lost to inadmissible exemptions, and Rs5.52bn was the result of improper input tax adjustments.

The customs sector experienced substantial fiscal inefficiencies, with Rs12.60bn tied up in confiscated goods and vehicles, and Rs9.35bn in unencashed financial instruments. Additional shortfalls included Rs3.29bn from un-exported finished goods, Rs2.27bn from unrecovered dues, and Rs1.56bn due to inadmissible exemptions and concessions. Other inefficiencies stemmed from under-valuation of imports (Rs865.78m), wastage (Rs1.42bn), and misclassification (Rs1.16bn).

Other critical gaps in the customs sector included Rs973.87m in pending adjudications, Rs972.39m due to ineffective follow-ups on court cases, and Rs427.35m from irregular auctions. Losses from non-clearance of warehoused goods amounted to Rs253.64m, and revenue from unauthorised imports accounted for Rs19.92m.

The Auditor General’s report paints a troubling picture of Pakistan’s tax collection system, highlighting serious inefficiencies and systemic gaps across multiple sectors. It underscores the need for urgent reforms in tax administration, improved enforcement mechanisms, and better oversight to curb these widespread revenue losses and ensure more robust fiscal governance.

Published in Dawn, August 22nd, 2025