From Zero Income to Millionaire Living: Examining Pakistan’s Controversial Tax System

As of June 30, 2025, Pakistan’s Federal Board of Revenue (FBR) recorded 5.9 million income tax returns for the 2024 tax year. Surprisingly, around half of these returns showed zero income. This trend of declaring no income is continuing into 2025, with over 40% of returns filed by September 27 also reporting nil income.

Despite living lavishly—owning large homes, traveling internationally, and wearing designer brands—many individuals do not reflect their actual earnings in their tax filings. A recent analysis by tax officials revealed a stark disconnect between lifestyle and declared income.

To tackle this issue, tax authorities are looking to other countries for ideas. In places with robust tax systems, rewards for whistleblowers have helped reveal hidden wealth. Currently, Pakistan offers a maximum reward of Rs5 million for informants, but the FBR is pushing to increase this to Rs150 million, structured on a tiered scale. This change aims to motivate credible disclosures and align with global standards.

An anonymous tax official explained, “Many people live extravagantly, yet their reported incomes don’t match their living standards.” Presently, Pakistan follows a universal self-assessment scheme where taxpayers often report income without verification, creating opportunities for misuse. The effectiveness of this system relies on rigorous audits and data transparency, which remain challenges in Pakistan’s predominantly cash-driven economy.

To improve this situation, tax officials recommend using informal networks—like family, friends, and colleagues—to uncover hidden income. These individuals are often privy to cash transactions and lifestyles that suggest higher earnings. “If whistleblowers feel secure and well-rewarded, they can be crucial sources of information,” one official noted.

Countries with advanced tax systems already benefit from such strategies. For Pakistan to follow suit, a structure that guarantees confidentiality and substantial rewards is essential. Simplifying the current whistleblower reward system could also encourage more people to come forward. Officials suggest that any information obtained should only apply to the current tax year, allowing taxpayers to adjust their declarations without fear of past audits.

“By promoting accurate filings, we can cultivate a culture of compliance,” an official stated. Enhancing the FBR’s approach could reshape Pakistan’s tax landscape, helping to bridge the gap between lifestyle and income declarations.

For more insights, see the Income Tax Ordinance 2001.

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Economic Affairs,Finance,National affairs,Pakistan