Pakistan cannot broaden its tax base by repeatedly squeezing people already visible to the State. Artificial intelligence offers a different route: build a national economic registry that can distinguish taxable capacity from dependency, lawful informality from criminal activity, and taxpayers from those entitled to social protection

Pakistan’s tax debate begins with the wrong number. Every year governments ask how many income-tax returns have been filed. They celebrate another increase with no meaning rise in tax paid with returns, announce a fresh documentation drive and then return authorised too the same narrow circle of salaried persons, incorporated businesses, importers, bank depositors and consumers already visible to the State.

By October 14, 2026, the Federal Board of Revenue (FBR) had received 6.71 million income-tax returns, up 34.38% over the comparable period last year but tax paid was lower than last time. The improvement in number is, thus, ceremonial. It also exposes the scale of the problem of voluntary compliance and tax avoidance and evasion in Pakistan.

Pakistan live population at worldometers (accessed at 10am on October 23, 2026) was  260.5 million, out of which, working-age/adult-group (15–60 years) is roughly 180 million, but active labour force officially is about 95 million. However, labour force data is highly controversial due to huge size of informal economy and correct reporting as well as faulty mythology [Aneel & Muneeb, Islamabad Policy Research Institute, October 2025].  

Pakistan's total informal labour force is estimated at approximately 65.4 million to 70 million workers, based on a national labor force of around 95 million and an informal sector share of roughly 76% to 80% (State Bank series, Gallup Pakistan and PIDE). Amongst all in formal and informal sector about 30 million earn taxable income (both agricultural and non-agricultural), yet only a fraction appears meaningfully inside the direct-tax system at FBR and provincial agencies authorise to collect agricultural income tax.1

The explanation is not simply tax evasion. Pakistan Bureau of Statistics (PBS) places informal-sector employment at 72.5% of non-agricultural employment. In rural areas the share is 76.2%; even urban Pakistan records 68.5%. The latest Labour Force Survey also shows that own-account workers form a very large share of the informal sector. Pakistan is, in economic terms, overwhelmingly informal.2

That informality contains very different worlds. A home-based seamstress paid in cash is informal. So is a mechanic without registration, a street vendor, a carpenter, a small family shop, a freelance technician and millions of self-employed workers. Their economic activity may be completely lawful although the State cannot adequately observe their incomes, assets, family dependency or eligibility for social protection.

At the other end lie kidnapping for ransom, smuggling, narcotics, bhatta (extortion),  counterfeit trade, illegal currency movement, trade-based money laundering, proceeds of corruption etc. and organised crime. These two economies must never be confused.

Our work beginning with Pakistan: From Hash to Heroin and its sequel Pakistan: From Drug-trap to Debt-trap documented how narcotics, weapons, informal finance, smuggling........

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