Dr. Ikramul Haq
Yesterday’s article, Income Tax Gap Study, established that Pakistan’s fair individual income tax base is far larger than the number currently reflected in the Active Taxpayers List (ATL). However, the more serious structural weakness lies in taxation of companies, firms, associations of persons and commercial non-individual establishments. The corporate and business sector represents the most significant untapped income tax potential, yet remains strikingly under-documented.
Pakistan’s tax debate often assumes that businesses are already heavily taxed. The empirical evidence suggests otherwise. The tax system depends disproportionately on a very small number of large corporations, while millions of businesses remain outside the effective income tax net. This concentration of taxation is now well documented by multiple official and research sources.
One of the most revealing findings comes from the Pakistan Institute of Development Economics (PIDE), which analysed corporate tax filings and found that only about 600 companies paid nearly 81 percent of total corporate income tax, while more than 55 percent of companies paid no tax at all. This finding alone demonstrates that Pakistan’s corporate tax base is extremely narrow and dependent on a very limited number of taxpayers. Such concentration is rarely observed in economies of comparable size and indicates structural weaknesses in documentation and assessment.
More recent policy research confirms the same pattern. Studies based on Federal Board of Revenue (FBR) data show that approximately 5,000 companies contribute nearly 90 percent of corporate income tax, despite the existence of tens of thousands of registered companies and millions of operating business entities. This reinforces the conclusion that Pakistan’s corporate tax system relies heavily on a small segment of formal large-scale enterprises, while the majority of business activity remains either under-reported or outside the tax net.
The administrative structure of tax collection further confirms this concentration. Data relating to Large Taxpayer Offices (LTOs) show that these few offices, which primarily deal with large corporations, account for over 70 percent of total tax collection, including income tax and sales tax. This indicates that Pakistan’s tax system is not broad-based but rather concentrated around a limited number of large corporate taxpayers.
The concentration becomes even more evident when examining listed companies. Reports based on stock exchange disclosures indicate that top listed companies alone paid over Rs. 1.2 trillion in taxes, representing a substantial share of total direct tax collection. This again confirms that corporate taxation is concentrated among a small number of large companies, while a vast number of businesses contribute little or nothing.
These findings must now be juxtaposed with Pakistan’s business universe. According to the Securities and Exchange Commission of Pakistan (SECP), the number of registered companies in January 2026 reached 283,540, and the numbers continue to grow every year. However, registration alone does not reflect the true size of the business sector. A much larger number of firms operate as partnerships, associations of persons, sole proprietorships and informal enterprises.
A more reliable proxy for business activity is commercial and industrial electricity connections. According to power-sector data reported in NEPRA-related publications and distribution company statistics, Pakistan has millions of commercial and industrial electricity consumers.
Conservative estimates derived from these datasets suggest that commercial and industrial utility connections exceed eight million nationwide in 2025. Each such connection typically corresponds to a functioning business establishment, including factories, shops, offices, warehouses, educational institutions, healthcare providers and service enterprises. This provides a useful benchmark for determining Pakistan’s non-individual income tax base.
The Active Taxpayers List as of April 7, 2026 shows that the number of non-individual taxpayers stands at 2,438,284, including companies, associations of persons and other non-individual business entities. When compared with nearly eight million commercial and industrial electricity users, a substantial gap becomes immediately visible.
This implies that over 5.5 million business entities operating through commercial and industrial infrastructure, though paying advance income tax and sales tax with utilities, are either outside the income tax net or not actively filing returns. Even this estimate is conservative. Retail sector studies suggest that Pakistan has over seven million retail outlets, while provincial business registration data and SME studies indicate millions of additional small and medium enterprises operating across the country.
This gap highlights a fundamental distortion. Pakistan’s tax system relies heavily on a small number of large corporations, while millions of smaller and mid-sized businesses remain outside meaningful assessment.
The geographic concentration of taxation further reinforces this conclusion. Research based on tax directory analysis shows that a handful of major cities contribute nearly 90 percent of total income tax, while hundreds of smaller cities and towns contribute very little. This concentration suggests that economic activity outside major urban centres remains under-documented and under-taxed.
Another structural weakness lies in Pakistan’s reliance on withholding taxes. Businesses often pay advance taxes through electricity bills, imports, contracts and banking transactions. However, these taxes do not necessarily translate into proper income tax assessment. Many businesses pay withholding taxes but do not file meaningful returns or declare actual income.
This system creates a paradox similar to individual taxation. Businesses are taxed through transactions but remain outside proper documentation and assessment. The result is a narrow corporate tax base and excessive reliance on a small number of large taxpayers.
Pakistan’s direct tax-to-GDP ratio reflects this structural weakness. Despite significant economic activity, direct tax collection remains low, and corporate tax revenue is heavily concentrated. This indicates that the problem lies not in economic capacity but in documentation and enforcement.
A rational corporate tax policy must therefore begin with expanding the business filing base. Commercial and industrial electricity connections provide an immediate and credible dataset for identifying potential taxpayers. Integration of NEPRA, SECP, banking and provincial registration databases can significantly expand documentation.
Pakistan’s fiscal sustainability depends on broadening the corporate tax base rather than increasing tax rates on existing taxpayers. Over-taxation of compliant large corporations discourages investment and growth, while millions of businesses remain outside the tax net. The evidence is clear. Pakistan’s non-individual income tax base should exceed six million entities, yet only 2.44 million are currently active taxpayers. At the same time, a few thousand companies pay the overwhelming share of corporate income tax and collect most sales tax on behalf of the state. This is not a broad-based tax system. It is a highly concentrated and distorted tax structure.
The earlier Income Tax Gap Study demonstrated that Pakistan’s fair individual filing base is around 20–22 million persons. This sequel confirms that the corporate and business tax gap is equally significant, with millions of enterprises operating outside the effective income tax net.
Pakistan’s fiscal crisis is, therefore, not caused by lack of economic activity. It is caused by failure to document and tax that activity fairly. Until Pakistan expands its corporate tax base and shifts from withholding-based taxation to proper assessment, the country will continue relying on a narrow group of taxpayers. This is neither sustainable nor equitable. Closing the income tax gap —other than individuals is therefore essential for fiscal stability, economic fairness and long-term growth.
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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.