ISLAMABAD: Pakistan’s tax administration is grappling with a growing challenge as nearly 39 per cent of income tax returns for tax year 2025 (TY25) declare zero income, raising serious concerns about tax compliance and enforcement, official sources told Dawn.
Out of 5.912 million income tax returns filed up to October 31, around 2.262 million were nil-returns, indicating no taxable income. This leaves only 3.65 million taxpayers who actually declared income during TY25, highlighting the scale of potential income concealment.
Nil-filing is prevalent across all major taxpayer categories — individuals, associations of persons (AOPs), and companies. Many such returns are filed to facilitate one-off financial transactions or to secure placement on the Active Taxpayers List (ATL), which allows access to lower tax rates.
Officials within the Federal Board of Revenue (FBR) have expressed concern that the income tax system is failing to capture the real wealth of taxpayers. Internal analyses point to a widening gap between declared incomes and visible lifestyles, with many individuals enjoying high-end living standards while reporting zero or negligible income.
For TY25, individual taxpayers accounted for a substantial share of nil-filers. Of 5.805 million individual returns, 2.206 million, or 38 per cent, declared no taxable income. A similar trend was recorded in TY24, suggesting that the issue has become entrenched rather than cyclical.
The corporate sector showed the most alarming figures. Of 17,873 corporate returns filed, 13,739 companies, representing 76.87 per cent, reported nil income. Only 4,134 companies declared any taxable profits, raising questions about underreporting and the effectiveness of enforcement within the formal business sector.
Associations of Persons emerged as the second-largest group of nil-filers. Out of 89,510 AOP returns, 42,834 — nearly 48 per cent — declared zero income, leaving just 46,676 AOPs reporting taxable earnings.
Tax officials attribute the persistent rise in nil-filing partly to policy distortions introduced through higher tax rates for non-filers and proposals restricting their access to financial and investment activities. These measures, officials say, have encouraged “junk filings,” allowing individuals to remain on the ATL without contributing any tax, inflating return-filing numbers without improving revenue.
A senior tax officer told Dawn that many taxpayers living in palatial homes, driving luxury vehicles, travelling frequently abroad, and consuming high-end goods report incomes that do not align with their lifestyles. He said income declarations and tax payments often bear little resemblance to actual living standards.
The officer argued that the current system incentivises filing without payment and called for redefining the concepts of filer and non-filer by linking tax return filing strictly to tax contribution. He also pointed to weak data integration and Pakistan’s cash-based, largely undocumented economy as major obstacles to broadening the tax base.
Despite repeated reform efforts, the persistence of nil-returns continues to undermine revenue mobilisation and exposes deep structural flaws in Pakistan’s tax framework.
