Abstract

Tax compliance is a crucial issue for developing countries. Pakistan’s tax-to-GDP ratio remains significantly lower than the average in other developing countries. While the average tax-to-GDP ratio for South Asian countries is around 20%, Pakistan lags behind at under 15% (OECD, 2023). This disparity highlights the need for targeted reforms to bridge the compliance gap and improve revenue collection. As increased compliance leads to higher government revenue. Pakistan, like many other developing nations, faces a low tax-to-GDP ratio. Although tax regulations are well-documented, enforcement remains inconsistent across various economic sectors. This research focuses on the freight transport sector in Islamabad to identify the factors contributing to low tax compliance. A survey of 114 freight transport operators was conducted to examine their education levels, tax knowledge, operational practices, and perceptions of tax authorities. The findings reveal that most operators are uneducated and lack awareness of their tax obligations. Additionally, there is minimal fear of detection due to infrequent audits by tax authorities. Cash-based transactions without proper documentation further reduce transparency and increase the potential for underreporting income. This study advocates for digitizing business operations to improve data collection and tax monitoring. Collaboration between the Federal Board of Revenue (FBR), Securities and Exchange Commission of Pakistan (SECP), and vehicle registration offices could enhance regulatory oversight. Additionally, targeted educational programs and systematic random audits are recommended to foster a culture of compliance.