The Auditor General of Pakistan (AGP) has reported a significant improvement in tax administration, with the value of tax and financial irregularities identified in the Federal Board of Revenue (FBR) declining to Rs242 billion during FY2024-25, compared with Rs662.7 billion in the previous fiscal year.

According to the latest audit report, the total value of audit observations fell by approximately Rs421 billion, representing a 63.5% year-on-year decline, indicating stronger compliance and improved tax administration despite continuing challenges in enforcement and revenue recovery.

The most notable improvement was recorded in the income tax segment, where reported irregularities dropped from Rs457.1 billion to around Rs163 billion. The largest issue remained the non-recovery of super tax, although the amount declined substantially from Rs167.9 billion involving over 1,600 cases to Rs117 billion across 527 cases.

Audit findings also showed considerable improvement in under-assessment of income tax arising from inadmissible expense claims, which fell from Rs149.6 billion to Rs25 billion. Similarly, unrealised minimum tax decreased from Rs22.9 billion to Rs15 billion, while non-apportionment of expenses accounted for an additional Rs2 billion in irregularities.

In the sales tax and Federal Excise Duty (FED) segment, total irregularities declined from Rs186.7 billion to approximately Rs60 billion. The largest improvement came from fake or inadmissible input tax credits claimed through invoices issued by suspended or blacklisted suppliers, with the amount dropping from Rs123.6 billion to Rs42 billion.

Losses due to non-realisation of sales tax on taxable supplies also reduced significantly to Rs13 billion, compared with Rs36 billion reported in the previous audit. Likewise, irregularities relating to the non-apportionment of input tax declined from Rs8.5 billion to Rs2 billion.

The customs sector also showed overall improvement, with audit observations declining from Rs18.9 billion to nearly Rs18 billion. However, some areas remained a concern. The value of confiscated goods and vehicles awaiting disposal stood at Rs13 billion, while losses resulting from the misclassification and undervaluation of imported goods increased to Rs3.6 billion, up from Rs1.2 billion a year earlier.

Meanwhile, irregularities related to inadmissible customs exemptions and concessions declined from Rs1.6 billion to Rs700 million, while the failure to recover surcharges on warehoused goods accounted for an additional Rs809 million.

Despite the decline in the overall financial impact, the AGP noted that the number of audit observations increased to 193 field office observations, reflecting broader audit coverage. The report suggests that while tax administration has improved considerably, further efforts are required to strengthen enforcement, recovery mechanisms, and compliance across the country's tax system.