ISLAMABAD — The Auditor General of Pakistan’s (AGP) latest report has laid out a staggering picture of the country’s fiscal mismanagement, identifying a tax gap worth Rs789.92 billion in 2024-25. The shortfall spans income tax, sales tax, customs, and excise duties, underscoring deep-rooted weaknesses in both compliance and enforcement.

Income Tax Tops the List of Losses

The most severe leakages were recorded in income tax collections, which fell short by Rs480.19bn. Sales tax followed with a Rs212.12bn gap, while customs duties and excise contributed comparatively smaller but still concerning deficits of Rs40bn and Rs615m, respectively.

The AGP highlighted that beyond headline shortfalls, misreporting and inconsistencies plague the system. A Rs57bn mismatch was found between revenue figures reported by the Federal Board of Revenue (FBR), State Bank of Pakistan, and the Accountant General Pakistan Revenues — a glaring sign of weak institutional coordination.

Where the Money Slipped Away

The breakdown reveals systemic flaws in enforcement:

• Super tax under-collection: Rs167.88bn
• Inadmissible expense claims: Rs149.57bn
• Unrecovered demands: Rs62.32bn
• Shortfalls in minimum tax and withholding tax: Rs22.87bn and Rs45.39bn
• Default surcharges and tax on retailer sales: Nearly Rs16bn combined

On top of this, billions were lost to concealed income (Rs54.19bn), non-taxation of alternate income streams (Rs23.28bn), and the absence of penalties for late or non-filers (Rs26.59bn). Smaller but telling irregularities included dubious claims for depreciation, questionable refund adjustments, and misuse of tax credits for donations and investments.

Fake Invoices Drain Sales Tax Revenues

The sales tax regime, already notorious for leakages, saw Rs123.59bn vanish due to fraudulent input tax claims based on fake or blacklisted invoices. Another Rs35.97bn was lost from hidden sales, while inadmissible exemptions and improper adjustments added several billion more to the deficit.

These figures echo long-standing criticisms of Pakistan’s tax culture, where manipulation of sales tax refunds and input credits has become an entrenched practice.

Customs: Weak Enforcement, Big Losses

Customs operations were no exception. The audit revealed Rs12.6bn stuck in confiscated goods and vehicles, Rs9.35bn in uncashed financial instruments, and billions more tied to unrecovered dues, under-valuation of imports, misclassification of goods, and irregular auctions. Court delays and ineffective follow-ups left nearly another Rs1bn hanging in unresolved cases.

Such inefficiencies not only starve the exchequer but also create opportunities for smuggling and grey-market activity.

The Bigger Picture: Governance at Stake

While the audit’s long list of figures may seem technical, the underlying message is clear: Pakistan’s tax system is failing to capture vast sums that could otherwise ease fiscal pressures. With the government struggling to expand its tax base and meet IMF conditions, the Rs790bn gap is more than an accounting anomaly — it represents the cost of weak governance, inadequate oversight, and entrenched loopholes.

The AGP’s report makes one point undeniable: without urgent reform in tax administration, enforcement, and institutional coordination, Pakistan will continue to bleed revenue at a scale it cannot afford.