In 2007, under the most powerful hybrid regime, the hard drives from thirteen specific computers at the headquarters of what was then called the Central Bureau of Revenue in Islamabad were physically stolen. Not hacked. Not breached remotely. The drives were disconnected and removed. They housed the personally identifiable information of every registered taxpayer in Pakistan: National Tax Numbers (NTNs), names, addresses, and banking and financial histories. The entire database of Pakistan's tax system walked out of the building.

Benazir Bhutto, former Prime Minister, living in exile, called me shortly after. She told me the data of all taxpayers of Pakistan was gone with the wind. During that conversation, I learned something that stopped me cold: only 1.81 million taxpayers existed in that database. In a country of over 180 million people at the time, that was roughly one per cent of the population paying any direct tax at all.

She wanted to change that, as none of the previous governments had been successful in doing that. Expanding the tax base was central to what she intended to do upon her return to Pakistan. She asked me to help.

I told her honestly that I had no idea about income tax. I was working in the United States at the time, leading the rollout of an automated Property Tax System in Michigan's largest county. Property Tax systems, yes. Income tax administration in Pakistan, no. But she was not asking me to become a tax expert. She wanted me to bring together economists who understood both the data and the policy, and she knew where to look. She suggested I discuss it with economists in my own family, people trained by the late Dr Mahbub ul Haq: my brother, at Oxford, and my sister, at Toronto.

That conversation in 2007 was my introduction to Pakistan's tax problem. It was also, though I did not know it then, the beginning of a journey that would consume a significant part of my life.

Two months after her return to Pakistan, Benazir Bhutto was assassinated in the garrison town of Rawalpindi in December 2007. The conversation we had about the tax base and about what a properly documented Pakistani state could do for its citizens stayed with me.

In 2013, we estimated that if Pakistan's 3.5 million richest of rich tax evaders were brought into the tax net, the country could potentially collect at least US$3.5 billion in additional revenues, more than three times the amount Pakistan was then seeking from the IMF

In 2013, we estimated that if Pakistan's 3.5 million richest of rich tax evaders were brought into the tax net, the country could potentially collect at least US$3.5 billion in additional revenues, more than three times the amount Pakistan was then seeking from the IMF

The Structural Problem

Before my tenure as NADRA Chairman, I served as General Manager of Networks at NADRA from April 2008. In that role, I was part of the team that helped build the technical infrastructure, not only for NADRA itself but for the Benazir Income Support Program as well, one of the largest targeted social protection schemes in the developing world. Routing cash transfers to the poorest women in Pakistan through biometric verification, ensuring the money reached real people rather than disappearing into corrupt intermediaries, was the kind of work that made the mission concrete. Digital systems were not ends in themselves. They were tools to deliver fairness to people the state had long ignored.

What I learned in that period also made the tax problem impossible to separate from the social protection problem. The same state that could not identify its taxpayers was also the state that could not find its poorest citizens without building an entirely new registry from scratch. Both failures had the same root: Pakistan had never seriously tried to document itself.

For decades, Pakistan's tax debate revolved around the same prescriptions: increase rates, impose new levies, or expand withholding taxes on electricity, fuel, telecom, and banking transactions. Governments repeatedly squeezed the documented economy because it was easier to tax those already visible than to identify those who remained outside the system.

Yet Pakistan's fundamental problem has never been a shortage of taxable wealth. The problem is that much of that wealth remains undocumented, undertaxed, or politically protected.

Pakistan is not necessarily a poor country. It is a poorly documented economy.

A nation of more than 240 million people cannot sustainably function when only a small fraction contributes meaningful direct taxes while large concentrations of wealth remain hidden in plain sight through undocumented commercial activity, underreported income, proxy ownership, and weak enforcement. The consequence is predictable: salaried classes and compliant businesses bear the burden, while the state increasingly relies on indirect taxation that disproportionately affects ordinary citizens.

Good governance is impossible without adequate state capacity to collect revenues. No country can sustainably finance infrastructure, social protection, education, healthcare, or economic resilience if the wealthiest segments of society remain outside the tax net while the poor effectively subsidise the rich.

This is where digital governance fundamentally changes........

© The Friday Times