A recent World Bank Group report, 'South Asia Development Update: Taxing Times,' highlights Pakistan's reliance on consumption and trade taxes. This dependence limits revenue potential and undermines the equity of the tax system. The report also points out that Pakistan, along with Sri Lanka and Bangladesh, has a low tax revenue-to-GDP ratio compared to other emerging economies.
The report notes Pakistan's commitment to increasing tax revenues as a percentage of GDP under the IMF's Extended Fund Facility (EFF) program. However, it suggests that achieving this goal will be challenging given the slow pace of economic growth. The report also doesn't highlight the impact of austerity policies on lower tax collection and economic growth.
The report criticizes the regressive nature of Pakistan's tax system, where consumption is heavily taxed while income from sectors like retail and real estate is undertaxed. This reduces purchasing power and hinders savings and investment, ultimately impacting economic growth and import substitution.