Pakistan declares ‘war on cash’ to curb tax evasion

Pakistan government has launched a crackdown on tax evaders as part of a broader “war on cash,” Finance Minister Muhammad Aurangzeb announced during a press conference on September 29.

The initiative aims to target non-filers and under-filers, who are reportedly evading around Rs1.3 trillion in taxes, while also bringing Rs9.3 trillion of circulating cash into the formal economy to boost revenue generation, Aurangzeb said

“We must declare war on cash if we aspire to join the G20,” he asserted, highlighting the need for comprehensive documentation of financial transactions.

Aurangzeb, alongside Federal Board of Revenue (FBR) Chairman Rashid Mehmood Langrial, outlined a roadmap to curb tax evasion and tighten regulations on undocumented transactions. He emphasized the importance of reducing Pakistan’s dependence on cash and transitioning to a more documented economy, calling it a crucial step toward the country’s goal of joining the G20.

Combatting the tax gap

At the press conference, FBR Chairman Rashid Mehmood Langrial highlighted concerns over Rs2.7 trillion in taxes locked in litigation, while revealing a much larger “Rs7.1 trillion tax gap” that could be closed through advanced technology and stronger auditing systems. He also reaffirmed that the deadline for submitting tax returns would remain firm at September 30, dismissing reports of a potential extension.

Digital financial tracking system

In an effort to monitor and regulate transactions, the government is introducing a digital system that will track financial activity and cross-reference transactions with declared income. Non-compliant individuals could face restrictions on purchasing vehicles, property, and other major assets, as well as difficulties in banking and cash withdrawals.

He further mentioned the importance of using lifestyle data to ensure transparency and accountability. This data, already available to tax authorities, will be used more effectively moving forward to raise the tax-to-GDP ratio.

The government plans to set up digital checkpoints on sea routes to combat smuggling, which costs the country over Rs750 billion every year.

Progress and future plans

Aurangzeb touted the recent surge in tax filings, which have more than doubled to 3.2 million as of September 2024 compared to 1.6 million last year. Over 723,000 new filers have entered the system, a substantial increase from 300,000 the previous year. “This proves that we are walking the talk,” he said.

Aurangzeb noted that only 25% of 300,000 wholesalers and 14% of retailers are tax registered. “We have data to bring them into the tax net,” he said. To bring more retailers into the tax net, the government plans to register these businesses and implement a “Know Your Customer” (KYC) scheme similar to the banking sector.

The minister warned non-filers of restrictions. They wouldn’t be able to buy vehicles or properties. Also, they would face difficulties with bank accounts and withdrawals.

Looking to the future, Aurangzeb underscored the need for structural reforms to ensure lasting macroeconomic stability. He called for a shift from an import-led growth model to one focused on export-led growth, a transition crucial to breaking the cycle of balance-of-payment crises and IMF bailouts.

“We have to now change the DNA of our economy,” he said, describing this as a “defining moment” for Pakistan’s economic trajectory.

Aurangzeb assured that the government would also make the tax collection system transparent. “Reforms are needed within the Federal Board of Revenue (FBR), and we must improve its efficiency. Auditing is not the function of the FBR,” he added. “We are recruiting 2,000 chartered accountants.”

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