Tax Evasion and Illicit Trade Threaten Economic Stability

Pakistan faces a significant challenge in boosting its tax revenue and reducing its budget deficit. According to Fawad Khan, spokesperson for Mustehkam Pakistan, an advocacy group focused on curbing illicit trade and tax evasion, these issues are costing the country over Rs 1 trillion annually.

Key Sectors Fueling Tax Losses

Five major sectors are identified as significant contributors to tax evasion and illicit trade:

• Real Estate: This sector alone is estimated to be responsible for Rs 500 billion in annual tax evasion.
• Tobacco: The tobacco industry adds another Rs 240 billion to the national tax loss.
• Tires and Lubricants: Tax evasion in this sector amounts to an estimated Rs 106 billion each year.
• Pharmaceuticals: The pharmaceutical industry suffers from Rs 65 billion in annual tax losses.
• Tea: The tea sector also experiences a significant tax gap, estimated at Rs 45 billion annually.

Consequences of Tax Leaks and Illicit Trade

These tax leaks, combined with flawed policies, inadequate enforcement, and illicit trade, are pushing Pakistan towards a dire economic situation. The World Bank (WB) has also highlighted Pakistan's insufficient tax collection, pointing out that the country's tax-to-GDP ratio stands at only 11.6%, well below the recommended minimum of 15% for progressive economies.

Urgent Need for Action

Fawad Khan emphasizes the critical need to address these issues. He advocates for:

• Increasing the tax-to-GDP ratio.
• Enhancing tax collection efforts.
• Curtailing illicit trade in major sectors.

These measures are crucial not only for meeting tax targets set by the International Monetary Fund (IMF) but also for generating revenue for crucial human development projects.

Conclusion

Pakistan's economic stability and its ability to meet international standards depend heavily on taking decisive action against illicit trade and tax evasion. By addressing these challenges, the country can free up resources for vital human development initiatives and ensure a more sustainable economic future.

This article was published at Tax Evasion and Illicit Trade Threaten Economic Stability