From Evasion to Compliance: Addressing the Systemic Roots of Pakistan’s Taxation Crisis

Abstract

The informal economy creates significant difficulties for Pakistan's fiscal and monetary policies, with tax avoidance and evasion resulting in budget deficits. This research points out that in balance of lacking in collecting tax, Government accounts potentially were balanced or favorable, decreasing the need for loan intake. Tax evasion increased swiftly from 2022 to 2024, notably impacting fiscal inflows. Six primary reasons are listed: misuse of state money, tax resistance mindset, dishonest tax officials, excessive and numerous tax rates, complicated tax structure, and tax amnesties, meaning revenue Pardon scheme. To confront these problems, this study recommends encouraging social norms, maintaining lawfulness in Government bodies, and boosting media support for information campaigns and lawful tax behavior. Systematic changes, such as progressive taxation, the execution of the Sale tax, and the improvement of tax-gathering methods, are also suggested. Although there are some weaknesses in reflectiveness, the outcomes present an essential understanding for decision-makers who work toward improving tax compliance and maintaining budgetary steadiness.