Digitalization of the Tax System in Pakistan

nasiraijaz June 26, 2025

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The digitalization of Pakistan’s tax system is not just a technical upgrade—it is a crucial reform that can reshape the country’s economic future

Rasool Jan Baloch

In recent years, Pakistan has taken significant strides toward the digitalization of its tax system. This transformation, though still ongoing, marks a crucial shift in the way the government manages, collects, and audits taxes. The goal is simple yet ambitious: to increase tax revenue, reduce corruption, promote transparency, and bring more people into the formal economy. In a country where tax evasion has historically undermined public services and economic development, digitalization offers a much-needed solution.

Pakistan’s tax-to-GDP ratio has long remained among the lowest in the region, hovering around 9 to 10 percent, far below the global average. This low ratio is primarily due to widespread tax evasion, underreporting of income, and a large informal sector. Traditional paper-based systems have made it easier for individuals and businesses to avoid taxes or manipulate records. Recognizing this, the government, with the help of technology and international partners, has started shifting toward digital platforms to make tax compliance easier and more efficient.

The Federal Board of Revenue (FBR), the country’s main tax authority, has been at the heart of this digital transformation. One of its major reforms is the introduction of the IRIS online tax filing system. Through IRIS, individuals and companies can file their income tax returns electronically, check their tax profiles, and receive automated notices or refunds. This has significantly cut down manual processing and reduced the need for middlemen or tax agents, which often contributed to bribery or delays.

In addition, the FBR launched the Point of Sale (POS) integration system for retail outlets, particularly large retailers and chain stores. This system digitally links sales records with the FBR in real-time, helping ensure that sales tax is properly reported and collected. Consumers are encouraged to demand POS-verified receipts, and a prize scheme has been introduced to reward those who report discrepancies. This not only promotes transparency but also builds a culture of tax compliance at the grassroots level.

Moreover, the integration of National Database and Registration Authority (NADRA) and other government databases with tax systems is enabling better detection of non-filers and tax evaders. By analyzing data such as travel history, vehicle ownership, property records, and utility bills, the government can identify individuals living beyond their declared income. This use of data analytics and artificial intelligence is a key aspect of modern tax administration and is now being applied in Pakistan.

Digitalization is also helping improve documentation of the informal sector. Mobile-based tax apps and portals are being introduced to allow small traders and freelancers to register and pay taxes with ease. For example, the Tajir Dost Scheme and simplified tax regimes for small businesses aim to bring street-level vendors and small shop owners into the tax net with minimal paperwork and friendly interfaces. Such efforts are essential in a country where a large chunk of economic activity happens outside the formal banking and accounting systems.

Despite these reforms, challenges remain. Internet accessibility and digital literacy are still uneven across Pakistan, especially in rural areas. Many small business owners lack the technical skills or infrastructure to adopt digital tax tools. There is also resistance from certain powerful groups who benefit from the existing loopholes and are reluctant to be documented. Additionally, concerns over data privacy and cyber security need to be addressed to build public trust in the digital tax system.

However, the long-term benefits of digitalization outweigh the short-term obstacles. A transparent and efficient tax system will enhance the government’s ability to invest in public services like education, health, and infrastructure. It will also attract foreign investment, as international businesses prefer environments where financial systems are streamlined and corruption is minimal.

International institutions such as the World Bank and IMF have been supportive of Pakistan’s digital tax reforms, offering technical assistance and funding. Learning from successful examples in countries like Estonia, India, and Turkey, Pakistan can further improve its systems by automating audits, using blockchain for secure records, and encouraging digital payments to reduce the cash-based economy.

In conclusion, the digitalization of Pakistan’s tax system is not just a technical upgrade—it is a crucial reform that can reshape the country’s economic future. While the journey is far from over, the progress made so far is promising. To make the most of these reforms, the government must continue investing in digital infrastructure, raise awareness among citizens, and ensure that the systems are fair, accessible, and secure. Only then can Pakistan hope to build a strong, inclusive, and documented economy that benefits all its people.