Pakistan is facing a serious problem in collecting enough taxes to fulfill its development and public service needs. Taxes are basically collected to benefit its public by building roads, providing healthcare, infrastructure, and fulfilling necessities. However, Pakistan is collecting this amount much less than what is required, and this gap between the required taxes and the collected taxes is called the tax gap. According to a recent report of the Federal Board of Revenue (FBR), the tax-to-GDP ratio for the year 2023-2024 is only 9%. This low collection rate after looking into the economic size of the country signals a major shortfall, creating challenges for the government to provide sufficient resources to the public.

There are several reasons leading to the tax gap in Pakistan. The most crucial one is that only a small fraction of people pay taxes; millions of businesses in the country are operating without even registering for taxes, especially in the case of small businesses, and the ones registered, not even they as a whole are paying taxes. According to a report, registered taxpayers recently reached nearly 10 million, but only 4.4 million filed annual returns, and of those, only about 2.3 million actually paid any tax. 

Secondly, tax evasion is a common ongoing problem in countries where wealthier........

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