Digital Public Infrastructure and taxes: Pakistan’s high-stakes experiment

Digital Public Infrastructure (DPI) is revolutionising how governments worldwide deliver services, engage with citizens, and perform core functions. By promoting open-source, interoperable systems for data and platform sharing, DPI enables seamless collaboration between the public and private sectors.   

At its core, Digital Public Infrastructure (DPI) integrates foundational systems such as digital identity, payment platforms, and data exchange networks. These components are instrumental in enabling efficient service delivery, seamless data sharing, and effective digital governance across sectors. DPI promises to enhance transparency, reduce bureaucratic inefficiencies, and curb tax evasion. In Pakistan, where expanding the tax base and improving compliance remain persistent challenges, leveraging DPI could be transformative, strengthening state capacity, modernising governance, and laying the groundwork for a fairer, more effective tax system.

Tax administration in Pakistan

While India, its neighbouring country, has reshaped its government and society through DPI, another interesting, yet less documented, case study is Pakistan.  The country is currently grappling with currency issues, a balance of payments deficit, and an inflationary polycrisis.

Low tax performance and collection are contributing to rising debt levels, driven by a narrow tax base, tax evasion and weak enforcement mechanisms. This is further compounded by public distrust in the tax system, outdated infrastructure and, until recently, poor digitisation efforts.

In this context, enhancing DPI and more broadly digitalisation, to improve tax performance in Pakistan, holds a significant promise. Recent research shows that DPI applications can enhance key functions of tax administration. The experiences of Uganda and Ghana, where national identification (ID) systems have been integrated with tax registration, demonstrate that leveraging ID data can increase formalisation and improve the quality of taxpayer information.

Fiscal incentives can play a key role in accelerating the adoption of digital merchant payments, which in turn can support economic formalisation and generate richer data on financial transactions. However, to be effective, these efforts must be complemented by robust enforcement mechanisms, enhanced analytical capacity, and comprehensive institutional reforms. For Pakistan, this entails addressing systemic inefficiencies, strengthening interagency coordination, and rebuilding public trust in the tax and governance systems.

Initiatives from the Federal Board of Revenue

Pakistan has recently made notable strides in integrating DPI into its tax administration through initiatives led by the Federal Board of Revenue (FBR).

Firstly, the FBR is pursuing system integration with other public and private entities. The national ID agency, NADRA, has signed an MoU with the FBR for data sharing, and the FBR is legally permitted to access information from banks. It also regularly collects data from immigration authorities on citizens’ foreign travel. This third-party data, along with FBR’s own sources, is displayed through the ‘FBR Maloomat’ portal to nudge potential taxpayers to declare and pay their due taxes.

Secondly, the FBR has introduced several digital platforms, including Iris, Track and Trace (T&T), and the Point of Sale (PoS) system. Iris facilitates e-filing and simplifies taxpayer interactions, while the T&T system monitors production data in real time, helping reduce underreporting in key industries such as sugar, tobacco, cement, and fertilizer. This system alone brought millions of bags of sugar into the documented economy, resulting in increased revenue. The PoS system targets large retailers, digitally capturing sales data and engaging consumers through innovative incentives such as invoice verification rewards.

In addition to these interventions, the FBR has introduced digital invoicing—developed by Hubble—to improve visibility and traceability within the intermediate supply chain.          

Challenges and possible solutions

Despite recent advances, significant challenges remain. Integration gaps between the FBR and third-party data sources limit the effectiveness of digital systems, as a siloed mentality persists. Pakistan Revenue Automation Limited (PRAL), the technological backbone of the tax system, struggles with outdated infrastructure and capacity constraints. It also lacks the resources to hire and retain a highly skilled workforce, leading to gaps in its analytical capabilities.

To address these constraints, the Pakistani government recently passed the Digital Nation Pakistan Bill in the National Assembly. The bill aims to establish a layered stack of DPI solutions—specifically digital identity, payments, and data exchange—drawing inspiration from countries such as Estonia, the UAE, and India. It proposes the creation of two supra-ministerial bodies: the National Digital Commission, led by the Prime Minister and provincial chief ministers, and the Pakistan Digital Authority, overseen by industry experts.               

By consolidating citizen data into a unified digital identity framework, the bill’s measures are expected to improve tax collection over the next five years. This centralized strategy aims to enhance tracking efficiency, expand the tax base, and close compliance gaps by providing real-time access to reliable data. The FBR is also expected to contribute data to the DPI stack, enabling other government agencies to leverage tax information.

However, concerns around third-party data sharing and privacy have emerged, particularly as the FBR integrates data from banks, utility companies, and land registries to modernize tax administration. Digital governance experts have warned that weak data protection frameworks could erode public trust. In response, the FBR has taken steps to mitigate these risks by classifying taxpayer data as critical infrastructure under the Prevention of Electronic Crimes Act (PECA) 2016.

In conclusion, Pakistan’s recent efforts to modernize its tax system through DPI show considerable promise. Nevertheless, the FBR must overcome resistance from stakeholders—including taxpayers and powerful lobby groups—that continue to slow down adoption and impede reform. Priority should be given to capacity building, fostering partnerships across sectors, and engaging taxpayers to increase awareness of digital tools, encourage participation, and build trust. Strengthening institutions like PRAL, leveraging advanced analytics and AI, and promoting collaboration among entities such as NADRA and the banking sector will also be essential.

More research is needed to assess how DPI implementation will affect the FBR’s core functions, integrate with existing e-government platforms, ease taxpayer burdens, and ultimately broaden the tax base. The coming years will be critical in determining how these developments unfold.

Fida Muhammad and Waqas Ahmad Bajwa contributed to the article.