ABSTRACT

Pakistan’s tax system has undergone numerous reforms since 2000, however it continues to deal with structural inefficiencies such as low tax-to-GDP ratios, widespread tax evasion, and poor tax compliance. The main objective of this study is to investigate the Tax Administrative Reforming insights of Large Taxpayer Units (LTUs) in Pakistan. To achieve this objective, we used data from 1990 to 2023 for Total tax revenue, and Tax evasion (estimated using the Vito Tanzi method), while for LTUs and Compliances rate from 2000 to 2023 were obtained from Federal Board of Revenue (FBR) reports. To estimate this dataset, we employed the both Pseudo-Difference-in- Differences (DiD) and Interrupted Time Series (ITS) models. The findings demonstrate that total tax revenue improved significantly after the 2002 reform, LTU-covered sectors underperformed compared to similar non-LTU sectors. After transformation of LTU into Large Taxpayer Office (LTOs) showing visual signs of administrative improvement in total tax revenue, and large taxpayer revenue generation, but not reduced tax evasion. However, the reforms failed to deliver any significant reduction in tax evasion and improvement in voluntary tax payments (compliance). Interestingly, the study finds that higher tax rates are positively associated with higher tax evasion, reflecting weak enforcement and behavioral resistance among taxpayers. These findings emphasize the argument that administrative restructuring in isolation is insufficient to bring about meaningful tax reform. Rather, Pakistan’s path toward a robust and equitable tax system demands a holistic strategy encompassing digitization, risk-based auditing, taxpayer services, and institutional strengthening. The findings offer important insights for policymakers aiming to design more effective, transparent, enforcement-driven tax regime, and equitable tax systems in developing economies.