Islamabad, February 20, 2025 – Finance Minister Muhammad Aurangzeb has issued a strong call for taxing the undocumented economy, warning that Pakistan cannot afford to continue supporting “free riders” who avoid contributing to the national tax system. Speaking at the “Retail Reimagined: Innovate, Collaborate & Thrive” conference organized by the Pakistan Retail Business Council (PRBC), Aurangzeb highlighted the urgent need for reform to bring sectors that remain outside the tax net into compliance.
Aurangzeb stressed that Pakistan’s current tax structure is uneven, with significant portions of the economy evading their fair share of contributions. He pointed out that sectors like agriculture, retail, wholesale, and real estate remain largely untaxed, while the manufacturing sector, services industry, and salaried workers are bearing the brunt of the tax burden. “We cannot keep going back to the same sectors for more revenue. The formal economy is subsidizing those who do not pay taxes, and this is simply not sustainable,” Aurangzeb emphasized.
The Finance Minister underscored the critical need to document the parallel, or informal, economy, which has long operated outside the oversight of the tax authorities. “This country cannot afford a situation where certain groups continue to operate outside the tax net while benefiting from public resources,” he said, pointing out the growing strain on the formal economy and the injustice faced by those who contribute their taxes diligently.
Focusing on the retail sector, Aurangzeb highlighted a glaring disparity: while the retail industry contributes 19% to Pakistan’s GDP, it contributes a mere 1% in taxes. This stark contrast between economic contribution and tax obligations illustrates the systemic issues plaguing the country’s taxation system, he explained. Aurangzeb called for structural tax reforms to address this imbalance and ensure all sectors contribute fairly to the country’s economic development.
On the macroeconomic front, Aurangzeb provided an optimistic update on Pakistan’s economic indicators. He noted improvements in key areas, including a reduction in inflation, currency stabilization, a decrease in the policy rate, and stronger foreign exchange reserves. These positive changes signal a shift towards more stable economic conditions. Additionally, the Finance Minister revealed that Pakistan is in talks with international credit rating agencies, expressing hope that the country will regain a single B rating in the coming year. Achieving this milestone, he argued, would help Pakistan access international capital markets and further bolster economic stability.
“Our goal is to make Pakistan a ‘bankable brand’ again,” Aurangzeb affirmed. He emphasized that achieving sustainable and inclusive growth is crucial for long-term stability. This goal can only be realized through comprehensive reforms in taxation, energy, state-owned enterprises (SOEs), and public finance.
Addressing the challenges facing the Federal Board of Revenue (FBR), Aurangzeb acknowledged the reluctance of many taxpayers to engage with tax authorities. He stressed the importance of rebuilding trust and credibility within the system, noting that creating a more transparent and efficient tax collection process is essential to fostering greater compliance and confidence in the country’s tax regime.
Finally, the Minister spoke about the government’s rightsizing plans, confirming that a strategic framework has been developed for its implementation. He credited Dr. Ishrat Hussain, the former government adviser, for his role in crafting the institutional reform framework. While discussing privatization efforts, Aurangzeb admitted to some setbacks but reaffirmed the government’s commitment to moving forward, including the relaunch of the privatization of Pakistan International Airlines (PIA).
As Pakistan faces significant economic challenges, Aurangzeb’s remarks offer a glimpse into the government’s plans for sustainable growth and reform. By tackling tax evasion, promoting transparency, and focusing on comprehensive structural reforms, Pakistan hopes to pave the way toward a more robust and inclusive economy.