Pakistan’s Rs6trn tax evasion — a story of fraud, evasion and malpractice

By Zahid Gishkori, Mujahid Hussain & Abobakar Khan

ISLAMABADA: The estimated annual tax evasion of over Rs6 trillion in Pakistan underscores widespread tax fraud, irregularities, data manipulation, mismanagement, legal loopholes and flawed tax policies.

Everyone — from ordinary citizens to elites, government tax officials to FBR staff, industrialists, traders, government employees, farmers, and import-export businesses — plays a role, directly or indirectly, in tax fraud, embezzlement and theft.

Former FBR Chairman Shabbar Zaidi says that tax evasion costs Pakistan not Rs6 trillion but Rs10 trillion annually.

He said that, legally speaking, if no taxes are imposed, Rs9,700 billion is lost through various channels. “I wouldn’t label it theft; call it whatever you wish,” he said. Zaidi also took aim at the FBR, saying that its performance is far from impressive as it lacks both capability and competence.

“Of the Rs10 trillion lost, 80 per cent ends up in the pockets of businessmen, 10 per cent goes to officials who take bribes and grant tax exemptions, and 5 per cent is taken by their advisers,” Zaidi explained. “This is the overall breakdown. Out of the total Rs10 trillion, Rs800 billion is lost specifically due to businesses evading taxes,” he said.

Hum Investigates sought to explore the story of tax fraud and evasion but faced resistance from tax authorities, who refused to respond or share information despite multiple letters.

Meanwhile, Minister of State for Finance Ali Pervaiz Malik publicly said that the government intends to begin accountability for tax evasion with members of parliament and FBR officials.

The minister’s remarks align with key findings uncovered by Hum Investigates. Our research reveals that from 2015 to 2019, the assets of 1,170 parliamentarians increased by 85 per cent, from 49 billion rupees to 91 billion rupees. By examining tax records submitted to the Federal Board of Revenue (FBR) and the Election Commission of Pakistan, Hum Investigates also gained exclusive access to official records of parliamentarians’ assets. Our analysis shows that 87 per cent of these parliamentarians have served for nine years or more.

Apologies for the oversight! Here’s the revised version with “per cent” instead of the symbol:

In 2018, the declared assets of parliamentarians stood at Rs79.8 billion, rising to Rs91 billion by 2019.

However, according to FBR officials and the Election Commission of Pakistan, the true value of parliamentarians’ and their families’ assets exceeds Rs300 billion. Multiple interviews with officials from the FBR, Election Commission, Cabinet Division, and the FBR’s Intelligence and Investigation Directorate revealed that these assets were often concealed through benami (undisclosed ownership) arrangements, both domestically and internationally, over the past nine years.

Also read: Experts criticise new FBR condition for overseas Pakistanis on property transactions

Hum Investigates examined the assets of 200 prominent parliamentarians from 2014 to 2019, finding that 25 were billionaires, while 71 had assets exceeding 500 million rupees. Some parliamentarians and their families saw asset growth ranging from 100 per cent to 300 per cent. Additionally, 29 parliamentarians collectively declared foreign assets worth five billion rupees, spread across countries such as the UAE, Norway, Denmark, the UK, the USA, Australia, and Canada.

The investigation further revealed that 111 parliamentarians declared assets worth only one million rupees, while 41 declared assets below one million rupees. Ninety-nine parliamentarians are not registered with tax authorities, and 161 members do not file their tax returns. These non-filers collectively earn 37 billion rupees annually.

Additionally, two dozen female parliamentarians, whose millionaire husbands’ assets are linked to theirs, are not registered with the FBR. Their collective assets exceed 100 million rupees.

Among 37 unregistered parliamentarians, each has an average income of Rs10.1 million.

Two dozen women, collectively holding assets worth over Rs100 million, remain unregistered with tax authorities. Additionally, 311 parliamentarians (27 per cent) declared business partnerships valued at Rs21 billion. Seventy-one members temporarily distanced themselves from these partnerships, yet their tax records show they pay more in taxes than their declared wealth.

FBR and Election Commission of Pakistan officials have reported discrepancies in income and asset declarations for about 60 per cent of parliamentarians. The asset details of 117 members reveal significant inconsistencies. According to the FBR, the total tax paid by parliamentarians exceeds Rs2 billion. On average, parliamentarians paid Rs1.4 million in income tax during 2018-19, amounting to Rs1.6 billion collectively. However, tax payments dropped sharply by 60 per cent in 2019, falling to Rs980 million.

Hum Investigates reached out to 58 parliamentarians, but only 21 responded.

Audit reports reveal Rs425 billion in tax fraud, evasion, corruption, irregularities, recoveries, tax exemptions, and unacceptable expenditures recorded in the last fiscal year. Additionally, Rs107 billion in tax demands remain uncollected, and confusion persists over Rs40 billion in tax exemptions between the FBR and the State Bank of Pakistan.

The audits also uncovered Rs62 billion in unapproved expenditure claims. The FBR failed to recover Rs107 billion in tax demands, identified Rs400 million in embezzlement within its accounts, and neglected to claim Rs19 billion in sales tax credits or recover Rs34 billion. Uncollected withholding tax amounts to Rs25 billion, and penalties from non-filers stand at Rs10 billion.

The FBR has suspended 26 officers and 19 officials and dismissed three employees for corruption. Under the prime minister’s orders, 12 FBR officers were removed from their positions. Moreover, Rs2,700 billion in tax cases remain unresolved in various courts, including Rs2,400 billion in inland revenue cases and Rs250 billion in Customs cases, with a total of 90,000 pending cases.

In addition to tax fraud and corruption, millions of rupees’ worth of petrol and diesel were reportedly stolen from Karachi’s Port Qasim warehouses by a gang of five. Former Minister Hafeez Sheikh faces corruption allegations related to software development for various ports, leading to a loss of $11.125 million to the national treasury.

Incomplete hotel records also caused millions in losses to the treasury. According to registration data from the Ministry of Tourism Services under IPC, 120 hotels operate in Islamabad, including 98 one-star, 10 two-star, eight three-star, two four-star, and two five-star hotels. However, the Excise and Taxation Department collected taxes from only nine of these hotels.

Sources within the Directorate of Customs Intelligence revealed that Customs officials were involved in laundering Rs2 billion through tea imports in Karachi. Misuse of tax exemptions on tea imports destined for Azad Jammu and Kashmir led to tax evasion of Rs1.6 billion.

Authorities estimate that Rs6 trillion are evaded annually, including Rs3.6 trillion through sales tax fraud, primarily via fake invoices and adjustments. Another Rs1.3 trillion is evaded in income tax, Rs6 billion in smuggling, and Rs300 billion in excise duties.

Nauman Quddus and Tariq Wasim contributed reporting