There is a certain inevitability to South Asian discourse. Whether the subject is cricket, cinema, or tax administration, India will, sooner or later, be dragged into the room. Not always by invitation. Often by instinct.
The latest theatre of this familiar drama is Pakistan’s ongoing debate over the effectiveness — or alleged ineffectiveness — of its Federal Board of Revenue (FBR). The trigger was a set of startling figures on the country’s narrow sales tax base. These, in turn, sparked a sharply worded opinion article in Business Recorder by Abdul Rauf Shakoori, Huzaima Bukhari, and Dr Ikramul Haq. Their argument was that Pakistan’s wafer-thin sales tax base raises questions about the FBR’s very “viability and existence”. The provocation was strong enough to travel quickly through policy circles.
Pakistan, the article noted, had only about 185,501 active sales tax filers as of 7 April 2026, while the number of commercial and industrial electricity connections was said to be around 6 million. That mismatch was framed not merely as a compliance problem, but as an institutional indictment.
The argument escalated quickly, as such arguments do. A swift rejoinder came from Zehra Farooq, Secretary Revenue Operations & Analysis at the FBR. In a long thread on X, she pushed back with comparative data from India, as is often the case when critics across the border need a contrast. When defenders need a rebuttal, India is the example. We are, one might say, the subcontinent’s most overused footnote. In this case, Farooq cited an FY 2023-24 breakdown of India’s Income Tax Department collections.
“India’s enforcement share: 3.3%. Pakistan’s comparable figure is routinely cited at 4-5%. These numbers are nearly identical,” she wrote. “India’s Income Tax Department employs approximately 75,000 people. By the same logic being applied to FBR, India’s tax authority would be 96% redundant.”
The gist was that Pakistan’s problem, while serious, should not be treated as unique. And the comparison does reveal something serious. India has a gap. But it is a gap inside a working net.
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Gap vs disconnect
India’s gap is not the same as Pakistan’s disconnect. Start with the latest official numbers.
As of 30 April last year, noted a government release, India had more than 1.51 crore active GST registrations. Gross GST collections in FY 2024-25 reached a record Rs 22.08 lakh crore, up 9.4 per cent over the previous year.
On the direct-tax side, the latest time-series data from the Central Board of Direct Taxes (CBDT) shows provisional direct-tax collections of Rs 22.26 lakh crore in FY 2024–25, with the direct-tax-to-GDP ratio at 6.73 per cent and direct taxes accounting for 58.81 per cent of total tax revenue.
Meanwhile, the total number of registered small businesses remains much larger. Data from the Ministry of Micro, Small and Medium Enterprises shows that 6.63 crore enterprises were registered on the Udyam Registration Portal and Udyam Assist Platform between 1 July 2020 and 31 July 2025.
So yes, the number of enterprises on Udyam and Udyam Assist is far larger than the active GST base. But there is a meaningful difference.
The Indian system increasingly pulls economic activity inward through a more coherent architecture. GST is built around input tax credit, which gives businesses a commercial incentive to buy from firms that are visible to the system. It is reinforced by online registration, filing, and payment through GSTN, by e-way bills tracking the movement of goods, and by e-invoicing for business-to-business transactions above specified turnover thresholds.
This is where the India-Pakistan comparison becomes meaningful. India has a gap: a significant portion of economic activity remains outside the formal system, but the system increasingly pulls it in through intentional architecture built on incentives to stay within the net. Pakistan has a disconnect. Large parts of the economy can function, transact, and even pay some tax indirectly without ever entering the formal tax net. That distinction matters more than headline numbers.
Compliance without coercion
In India, the tax department does not have to chase every trader with a stick if the supply chain itself is already asking, in a tone of bureaucratic sweetness, “GST number, please?” That is the real distinction. Pakistan’s challenge is that too many firms live outside the net, whereas India has changed the incentives around staying outside it. India’s challenge now is to keep tightening a net that already exists.
The difference becomes clearer when one looks at how revenue actually arrives.
India’s own direct-tax minor-head data for FY 2024-25 shows about Rs 9.48 lakh crore from TDS, Rs 11.94 lakh crore from advance tax, Rs 1.69 lakh crore from self-assessment tax, and only Rs 1.04 lakh crore from regular assessment tax. The money does not come in after the tax department bangs on the door. It comes in before that, because the system has already made non-compliance difficult.
Where both sides get it wrong
Pakistan’s critics and defenders are both right. But both sides go astray when they reduce tax administration to a headcount exercise.
What matters is not simply how many taxpayers are registered but how difficult it is to remain outside the system while doing meaningful business inside the economy. This is why the fashionable argument that low enforcement collection means administrative redundancy is so unserious. Measuring tax audit effectiveness by direct collections is like judging traffic police by how much they collect in fines, rather than by whether people obey traffic laws.
This is also where the Pakistan debate offers India a useful warning. India should not misread its own success. Informality survives in services, retail, and local trade. The system works because it is increasingly woven into ordinary business life. India is ahead, but a large number of small enterprises remain outside GST. So the real takeaway from the cross-border bickering may well be institutional clarity.
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The curious case of cross-border validation
There is something faintly endearing about this Pakistani debate. It is a bit like citing your overachieving cousin: reassuring yourself that imperfection is universal while quietly acknowledging that the cousin is, in fact, doing rather well. One must admit, it is flattering. Though, from a tax-policy perspective, it would be nicer if India were remembered for the GSTN digital architecture, and not merely for occupying so much rental space in the subcontinental mind.
India may be an uninvited guest in Pakistan’s tax debates. But if that presence nudges the conversation — on both sides of the border — toward a deeper understanding of compliance, deterrence, and system design, it may well be a useful intrusion. And that counts as progress.
Poonam Khaira Sidhu is a former IRS officer, University of Michigan–trained LLM and economist, and published author with articles in international journals and Indian newspapers, specialising in international tax and public policy. Views are personal.
(Edited by Asavari Singh)