Pakistan tax-to-GDP ratio is 12%. By comparison, the OECD countries raise taxes equal to about 34% of their GDP. This limits Pakistan’s ability to fund public investment. When collecting taxes, it relies primarily on indirect taxes on goods and services, which accounts for 6.3% of GDP. The other 4.2% of GDP that creates direct taxes is collected mainly by businesses withholding a percentage of the government’s economic activity. Therefore, they do not require voluntary tax compliance for the population, which, as a result, is always very low.
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