How Pakistan is revving up a fight against tax dodgers

Summary

Podcast Summary: The Indicator from Planet Money — "How Pakistan is revving up a fight against tax dodgers"

Date: January 26, 2026
Host: Darian Woods
Guest: Betsy Joelz (NPR Contributor, reporting from Pakistan)
Duration: ~10 minutes (content summary only)

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Episode Overview

This episode dives into Pakistan’s long-standing struggle with low tax collection rates. The hosts discuss why so many Pakistanis escape paying income tax, the creative (and controversial) methods the government is trying to bring more people into the tax net—like monitoring social media for signs of unreported wealth—and examine the deep structural and social issues undermining tax compliance. The discussion features voices from Pakistan’s tax authorities, local economists, and everyday citizens.

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Key Discussion Points & Insights

1. Pakistan’s Dire Tax Collection Problem

• Comparison with US: Only 2–3% of Pakistanis file income taxes, compared to 47% in the US.
  • [03:22] Darian Woods: “Around 47% of Americans filed their federal income taxes last year. In Pakistan… around 2 to 3%.”
• Main Factors:
  • Widespread poverty (40% below the poverty line).
  • Small formal workforce and massive informal economy.
  • Tax threshold is low (~$2,000/yr income before paying).

2. Tax Evasion Among Wealthy Pakistanis

• The very rich still often report zero income—or avoid taxes using loopholes.
  • [04:18] Hamid Atik Sarvar (Federal Board of Revenue): “In the real, very real sense, it's the 6 million people who actually earn big income here who have sufficient amount of wealth.”
• Visible displays of wealth (luxury cars, expensive weddings) contrast with minimal tax filings.

3. New Tactics: Lifestyle Monitoring

• Lifestyle Monitoring Cell: Tax authorities scour social media for individuals posting signs of luxurious lifestyles. Those flagged are cross-checked against tax records.
  • [04:53] Hamid Atik Sarvar: “We start from there. Some are visible through their extravagant, maybe marriages and big houses. Some sort of investigation starts from there.”
• The tactic is as much about sending a message and creating deterrence as it is about directly catching evaders.
  • [05:29] Hamid Atik Sarvar: “We want to increase the perception of this probability of being caught through this because you cannot actually appoint a tax person or policeman on every door. The best taxes are the taxes which are voluntarily paid.”

4. Systemic Obstacles

A. Ineffective Enforcement:

• Paper trails exist (bank data, large purchases, property records), but enforcement is weak due to backlog in courts.
  • [05:58] Betsy Joelz: “That still doesn't exactly ensure taxes will get paid since courts are backlogged in Pakistan and cases can drag on for years.”

B. Massive Informal & Cash Economy:

• Many transactions (especially in industries like weddings) occur in cash, making income invisible to authorities.
  • [08:04] Economist Osama Khan: “Instead of doing transactions in a formal manner, everyone just reverted to cash.”
  • [08:18] Osama Khan: “How do you formalize this? As payments move away from cash to formal banking instruments. That I think is step one.”
• Limited banking inclusion—many Pakistanis lack bank accounts.

C. Overburdened Salaried Workers:

• Those in the formal sector and on government radar are taxed heavily—up to 35%.
  • [06:55] Akbar Zaidi (IBA Karachi): “If you're in the tax net, you become a victim because you're the one who's going to pay more for it.”
• Small base of compliant taxpayers leads to chronic deficits and repeated external borrowing (e.g., IMF bailouts).

D. Corruption and Trust Deficits:

• Elite impunity: Social connections and corruption help wealthy citizens avoid tax.
  • [08:48] Akbar Zaidi: “Connections matter. Who I know, can I avoid paying taxes? Can I ask somebody to... grease their palms or, you know, under-invoice…?”
  • [09:06] Akbar Zaidi: “It's impunity in a sense that, you know, you can't catch me, you can't touch me.”
• General public skepticism: Many cite lack of services as justification for not paying.
  • [09:13] Akbar Zaidi: “Why should I pay taxes? I'm not getting any service... Look at the water situation, the roads, the security, the schools, the health sector.”

5. Public Reaction to Government Tactics

• Supportive View: Some believe luxury-lifestyle tax dodgers deserve scrutiny.
  • [09:36] Kamal Mehdi (airline crew, Islamabad): “They are cheaters, obviously. They are earning black money and they don't want to give taxes and they are cheating with their government.”
• Skeptical View: Others doubt enforcement will work.
  • [09:57] Shahbaz Khan (banker): “In Pakistan, it's not practical to regulate people this way.”
• Attempts to expand tax net (e.g., whistleblower rewards) are ongoing, but impact is limited so far.

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Notable Quotes & Memorable Moments

• On the Informal Economy’s Size:
  • [07:41] Betsy Joelz: “Oh, yes. The limited size of that salaried class gives you an idea of just how big Pakistan's informal economy is.”
• On the Reality of Pay-to-Play:
  • [08:48] Akbar Zaidi: “Connections matter. Who I know, can I avoid paying taxes? Can I ask somebody to… grease their palms or, you know, under invoice and things like that?”
• On Public Services and Reciprocity:
  • [09:13] Akbar Zaidi: “Why should I pay taxes? I'm not getting any service for the taxes that are collected. Look at the water situation, the roads, the security, the schools, the health sector.”
• On Deterrence by Monitoring:
  • [05:29] Hamid Atik Sarvar: “We want to increase the perception of this probability of being caught through this because you cannot actually appoint a tax person or policeman on every door. The best taxes are the taxes which are voluntarily paid.”

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Timestamps for Important Segments

• [00:55] Millions opt out of paying income taxes; intro to Pakistan’s IRS and challenges.
• [01:13] Explaining lifestyle monitoring and its goals.
• [03:22] Stark comparison: US vs Pakistan tax filers.
• [04:18] Wealthy Pakistanis’ evasion and beginnings of social media monitoring.
• [05:43] Legal and practical enforcement difficulties.
• [06:31] The impact of Pakistan’s massive informal economy.
• [07:10] Repeated borrowing due to a narrow tax base.
• [08:18] The central challenge of reducing cash dependency.
• [08:48] Corruption, impunity, and social trust in tax system.
• [09:32] Public opinion on lifestyle monitoring; street voices.
• [10:14] Incremental improvements and whistleblower plans.

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Conclusion

The episode paints a complex picture of Pakistan’s tax evasion crisis: entrenched poverty, a giant cash-based informal economy, and a lack of public trust all conspire to keep tax collection rates among the lowest in the world. Government efforts—like social media lifestyle monitoring—may shift perceptions, create deterrence, and slowly widen the tax net, but major structural reforms are still needed. Both skepticism and hope run through public and expert opinions, highlighting the challenge of collecting taxes in a context where the rules—and the rulers—aren’t always trusted.

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Transcript

[A]

Npr.

[B]

This is the indicator from Planet Money. I'm Darian woods, and today I'm joined by Betsy Joelz, NPR's regular contributor from Pakistan. Thanks for joining us, Betsy.

[A]

Glad to be here, Darian.

[B]

So you've been reporting from Pakistan for several years now, which means you've seen some major economic bumps, including a near default in 2020.

[A]

That was a recent low point for sure, and it came just before a bailout from the International Monetary Fund, which is a serial lender to Pakistan. Pakistan's economy has recovered somewhat since then, but there are still some major structural issues, and one of them is seriously low tax collection.

[B]

Ah, yes, taxes, a thorn in the side of Pakistan's economy and in the side of every worker.

[A]

That's definitely how Pakistanis feel. So millions of people here just opt out of paying income taxes entirely. And the country has been trying to change that so it doesn't need to constantly borrow from the imf. Of course, Pakistan has its own version of the irs, which tracks incomes, but it's not that simple or effective.

[B]

So tax authorities have launched something they called lifestyle monitoring, which essentially means scouring social media accounts for people flaunting extravagant lifestyles but not paying taxes.

[A]

It may sound gimmicky, but it's meant to send a message to all those tax evaders out there.

[B]

So on today's show, we will be talking about why there are so many tax dodges in Pakistan, what the government is trying to do about it, and whether those plans will work.

[C]

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[B]

Let's start with a comparison. So around 47% of Americans filed their federal income taxes last year in Pakistan. Tax Authorities say around 2 to 3% of Pakistanis did the same.

[A]

Yeah, there are a few major reasons for that. The first one is pretty crucial. Lots of people don't earn much. I spoke with Hamid Atik Sarvar about this. He's at Pakistan's Federal Board of Revenue, the country's tax authority, AKA the fbr.

[E]

The focus is to convert information into tax dollars as soon as possible.

[A]

He believes around 5% of the population should be paying taxes, which is still.

[B]

A pretty small number of taxpayers.

[A]

Right. But Hamid says the rest probably don't even qualify. The threshold to start paying taxes in Pakistan is around $2,000 per year.

[E]

In the real, very real sense, it's the 6 million people who actually earn big income here who have sufficient amount of wealth.

[B]

Okay, so six million out of 250 million in Pakistan, that is the top two and a half percent.

[A]

Absolutely. The World bank estimates that about 40% of the population lives below the poverty line. But then there's this small section of the Pakistani public that's extremely wealthy, even by global standards. We're talking multiple luxury cars and real estate in Dubai type of rich. And habit says some of these people still report zero income on their tax returns. And that's where he says this so called lifestyle monitoring cell comes in social media, visible people.

[E]

We start from there. Some are visible through their extravagant, maybe marriages and big houses. Some sort of investigation starts from there.

[A]

Then tax authorities check that person's tax data to see if they're paying what someone who can afford those things should be paying.

[B]

And this isn't unique to Pakistan. Tax authorities in other countries have also been known to look at social media during audits.

[A]

And it's not turning up too many people in Pakistan. But Hamid says it's as much about deterrence as anything. The FBI has created ads to basically let people know they're out there and watching.

[E]

We want to increase the perception of this probability of Being caught through this because you cannot actually appoint a tax person or policeman on every door. The best taxes are the taxes which are voluntarily paid.

[B]

This obviously isn't the only way the government looks for tax evaders. They can also follow paper trails through big purchases, public records and bank data. If tax dodgers don't pay, they are charged a penalty, then the government can take them to court.

[A]

That still doesn't exactly ensure taxes will get paid since courts are backlogged in Pakistan and cases can drag on for years.

[B]

And there are probably millions more Pakistanis who do earn enough to be taxed but slip through the cracks. That's why the numbers don't add up.

[A]

Yeah, we have to remember that more than 40% of Pakistan's population is under 18 years old and the majority of women here aren't formally employed. So that cuts the size of the workforce way down, officially at least. And it takes us to the second big issue with tax collection in Pakistan, which is its massive informal economy.

[B]

This is common in a lot of developing lower and middle income countries. Pakistan's tax authorities say only a fraction of income tax filers are from the salaried class. These are people who get paid by an employer and have taxes taken directly from their paycheck.

[A]

Akbar Zaidi from the Institute of Business Administration in Karachi says that's the group that gets squeezed because they're firmly on the government radar. Year after year.

[E]

If you're in the tax net, you become a victim because you're the one who's going to pay more for it.

[A]

The tax rate for the salaried class can go up to 35%. So you can understand Akbar's complaints. The issue here is there just aren't enough people in this group.

[E]

Means that every year there's a shortfall, there's a deficit and the government needs to borrow. It needs to go to the imf, it needs to go to the other financial institutions, bilateral, multilateral, to raise finances.

[B]

So the IMF definitely plays an important role in this tax equation. It's been pushing Pakistan to raise revenues for years and these increases have often fallen on those salaried workers. And bringing more people into the formal workforce would totally change how Pakistan runs.

[A]

Oh, yes. The limited size of that salaried class gives you an idea of just how big Pakistan's informal economy is. This is made up of anyone from domestic helpers to high end property dealers. And the key here is cash. I spoke to economists on Khan about this. He says cash is one big way people avoid paying taxes. He gives the Example of the wedding industry, which the government has targeted in the past.

[E]

Instead of doing transactions in a formal manner, everyone just reverted to cash.

[A]

Amer says that it will be impossible to collect more taxes without first reducing the dependence on cash. This is a big effort since a lot of Pakistanis don't even have bank accounts.

[E]

So that is the thing. How do you formalize this as that payments move away from cash to formal banking instruments. That I think is step one. Anything else just goes over and above that.

[B]

We had Pakistan's finance minister on the show early in 2025 and he spoke about a push to digitize financial systems to help reduce corruption.

[A]

Yes, that big C word, corruption. The third fact in Pakistan's struggle to collect taxes. Akbar explains how people think about it.

[E]

Connections matter. Who I know, can I avoid paying taxes? Can I ask somebody to, to help me out and you know, just grease their palms or, you know, under invoice and things like that?

[A]

He says people do this without a second thought. Many are wealthy and powerful.

[E]

It's impunity in a sense that, you know, you can't catch me, you can't touch me.

[A]

Then there's the general trust deficit.

[E]

But there's also those who say, you know, why should I pay taxes? I'm not getting any service for the taxes that are collected. Look at the water situation, the roads, the security, the schools, the health sector. But then the government can turn around and say, well, if you paid your taxes, if everybody paid their taxes, things would be better.

[A]

We should mention here that Pakistanis do pay taxes on many goods and services. I went out to a shopping mall in Islamabad to ask people if they thought the government should be looking for tax evaders on social media. 23 year old Kamal Mehdi is a crew member for an international airline. They are cheaters, obviously. They are earning black money and they don't want to give taxes and they are cheating with their government. But banker Shahbaz Khan is skeptical.

[E]

In Pakistan, it's not practical to regulate people this way.

[A]

He thinks people will still find ways to avoid paying taxes.

[B]

Government efforts over the years to bring more people into the tax net have had some impact.

[A]

Yes. Hamid from the FBR says there were around 2 million income tax filers in 2019. So that number has come up. But the situation still isn't where it needs to be. He says tax authorities are even considering a whistleblower system where people can report on family members who aren't paying taxes. They can get cash rewards if they do.

[B]

Well. Thanks Betsy, for joining us.

[A]

My pleasure. Thanks for having me.

[B]

This episode was produced by Angel Carreras with engineering by Jimmy Keeley. It was fact hacked by Cierra Juarez. Kate Kirkannan edits the show and the indicator is a production of npr.

[C]

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[C]

Com.