Walk through a Karachi market today and Pakistan’s documentation problem looks different from the one I grew up with.

The cash drawer is still there. But beside it, increasingly, sits a QR code. A customer can take out a phone, scan the code and move money through Pakistan’s rapidly expanding digital-payment system within seconds. The transaction has entered the banking network.

The business behind it may still remain only partly visible to the tax system.

I find that contradiction more revealing than another argument about Pakistan’s tax-to-GDP ratio. Pakistan has spent years blaming cash, weak technology and inadequate financial infrastructure for the undocumented economy. Those explanations are becoming less convincing.

The country increasingly has the technology.

The harder problem is what happens after a transaction becomes visible.

Pakistan Is Becoming More Digital

Pakistan’s payments transformation is real.

The State Bank of Pakistan’s Payment Systems Quarterly Review for January-March 2026 shows how quickly the change is occurring. Raast processed 742 million transactions worth Rs23.27 trillion during the quarter. Raast person-to-merchant services were also expanding rapidly, with more than 2.6 million merchants onboarded or registered with an alias by the end of March.

Government figures point in the same direction. In September, the government reported that active merchants accepting digital payments had risen from about 500,000 to 2.03 million. It said a Rs3.5 billion subsidy for Raast QR adoption had helped accelerate the change.

These are substantial shifts.

For years, Pakistan’s undocumented economy benefited from the opacity of cash. A transaction could take place without leaving much of a financial trail. Digital payments change that architecture because they create records.

Yet a digital record is not the same thing as a documented economy.

That distinction matters.

The Trader Problem Has Not Disappeared

On September 15, 2026, something happened that captured Pakistan’s problem better than any theoretical discussion could.

The government and trader organisations agreed that joint teams of FBR officials and trader representatives would visit markets across Pakistan to register shopkeepers under the Asaan Tax Scheme. Local representatives would coordinate with tax officials and facilitate registration inside the markets.

Think about what this means.

Pakistan now has instant digital payments. It has a national identity infrastructure and increasingly sophisticated banking technology. FBR has more data than tax administrators possessed a generation ago.

Yet tax officials still need to enter markets alongside representatives of trader organisations and persuade shopkeepers to register.

Technology has moved much faster than formalisation.

The IMF found the same weakness from another direction. Pakistan missed the end-December 2025 indicative target for net FBR tax revenue. More significantly for this discussion, it also missed the target for income-tax revenue collected from retailers.

The undocumented economy has therefore not survived simply because Pakistan lacked the tools to see it.

Its endurance is also a political-economy problem.

Why Traders Matter Politically

A salaried employee is easy for the state to tax.

The employer records the salary. The banking system records payment. Tax can be deducted before the employee receives the money.

A large company is also visible. It keeps accounts, uses banks and deals with regulators. Auditors leave records behind.

A small business operating partly through cash presents a different enforcement problem.

Governments must identify economic activity, determine taxable income and then collect the tax. Enforcement becomes more difficult when thousands of businesses are dispersed across markets and commercial areas.

Politics enters quickly.

Trader organisations can mobilise. Markets can close. Tax measures can become subjects of negotiation rather than routine administration.

The current government’s approach deserves acknowledgement because it is attempting to change this relationship. The Asaan Tax Scheme emphasises simplified compliance and voluntary registration, while joint market teams are intended to make registration easier.

The test will come later.

Registration matters. Sustained filing and payment matter more.

Pakistan Has Often Taxed What It Can See

My banking background makes one part of this system especially striking.

Governments naturally prefer collection mechanisms that are administratively reliable. When money passes through a documented channel, the state has an opportunity to collect revenue without reconstructing the taxpayer’s entire economic life.

Pakistan consequently developed extensive withholding and advance-tax mechanisms.

The administrative logic is obvious. Collection at a visible transaction point can be easier than discovering income scattered through an informal economy.

But convenience has consequences.

The formal economy can become a collection point precisely because it is visible.

A salaried worker cannot easily disappear. A corporation cannot simply remove itself from the banking system. An importer must interact with customs. Electricity consumption also creates a measurable relationship between a consumer and a utility.

Meanwhile, bringing previously undocumented businesses fully into the tax net requires administrative effort and, often, political confrontation.

Pakistan can therefore end up taxing visibility rather than economic capacity.

That is the structural imbalance that matters.

The IMF Story Is More Complicated Than It Looks

I previously treated IMF programmes too simply.

The current programme does not merely demand more revenue from Pakistan. The IMF’s May 2026 review explicitly identifies broadening the tax base as part of the reform programme. It also calls for stronger public finances and structural reforms.

FBR has already implemented several measures under its transformation plan.

According to the IMF staff report, these include stronger taxpayer audits, expansion of digital invoicing and production monitoring. The IMF nevertheless warned that some of these measures primarily target existing taxpayers, and said revenue-administration efforts needed to intensify retailer registration.

That observation goes to the heart of Pakistan’s tax problem.

Improving compliance among people already inside the system can raise revenue.

It does not necessarily broaden the system.

Pakistan could build increasingly sophisticated machinery for monitoring formal taxpayers while large areas of economic activity remain difficult to assess.

The distinction between collecting more and taxing more broadly is crucial.

Digital Invoicing Changes the Equation

FBR’s digital-invoicing programme could become one of the more consequential reforms.

By the end of December 2025, entities registered as sales-tax filers were required to register on the digital-invoicing platform. The IMF reported that by the end of March 2026 about one-third of tax filers were issuing live invoices. The system is designed to make sales-tax liabilities easier to calculate while giving FBR greater transaction visibility.

Production monitoring is also expanding.

The IMF reported full deployment in sectors including sugar, cement, tobacco and fertiliser, with textiles and beverages moving through pilot phases toward wider monitoring.

These reforms matter because they attack information gaps.

But they also expose another imbalance.

The more accurately the state observes a documented factory or registered company, the harder it can squeeze that taxpayer. If comparable improvements do not occur in the registration of businesses outside the system, technology can unintentionally deepen the divide between visible and less-visible taxpayers.

Digitalisation only produces tax fairness when its reach expands.

Formal Businesses Pay for Being Formal

Consider the position of a company that operates entirely inside the documented economy.

It maintains records. Its employees appear on payrolls. Its banking transactions leave trails. It complies with corporate and tax rules.

Now place that company beside a competitor whose economic activity remains partly outside those systems.

The formal business can carry compliance costs that its competitor avoids.

That does not mean informality alone explains corporate investment decisions. Companies enter or leave Pakistan for many reasons. Foreign-exchange conditions matter. Regulatory predictability can matter, as can profitability and decisions taken by multinational headquarters.

Still, uneven documentation can distort competition.

A tax system works best when businesses compete over productivity and service, not over who can remain less visible to the state.

Pakistan’s Economy Is No Longer Where It Was in 2023

Pakistan’s Economic Survey 2025-26 reported provisional GDP growth of 3.70 percent in FY2026, compared with 3.18 percent in the previous year.

The IMF also reported improved external and financing conditions. Gross foreign-exchange reserves stood at about $16 billion at the end of December 2025, up from $14.5 billion at the end of June.

Pakistan has therefore demonstrated something important.

Macroeconomic stabilisation can occur while the structural documentation problem remains unfinished.

That changes the argument.

The question is no longer whether an undocumented economy makes stabilisation impossible. Recent experience suggests otherwise.

The question is whether Pakistan can convert stabilisation into durable growth without widening the tax base and reducing distortions between documented and less-documented economic activity.

That problem is harder.

Raast May Be Building the Infrastructure for the Next Battle

I keep returning to those QR codes.

Pakistan’s government describes its Cashless Pakistan initiative partly as a way to improve transparency and accelerate documentation. In July, it reported that annual digital transactions had increased from 6.9 billion to 11.3 billion, while active digital-payment merchants had risen from roughly half a million to more than two million.

Officials are now considering a centralised merchant database to improve transaction visibility.

Here lies the real opportunity.

For decades, Pakistan’s tax authorities faced a basic information problem. Much commercial activity generated few records that could be analysed cheaply and at scale.

Digital payments can gradually weaken that defence.

But Pakistan must handle the transition carefully.

People will resist digital payments if they see every QR code primarily as an instrument of coercive taxation. Small businesses also face genuine compliance costs. A successful formalisation strategy therefore needs simple registration and predictable rules.

The state must make entry into the formal economy worthwhile.

Why the Undocumented Economy Survived

Pakistan’s undocumented economy survived successive governments partly because it adapted.

When tax authorities strengthened one collection point, economic activity could move elsewhere. When governments attempted retailer documentation, organised resistance complicated enforcement.

The formal sector remained easier to reach.

Now the balance may finally be shifting.

A payment made through Raast creates data. Digital invoices create another layer of information. Production-monitoring systems can make discrepancies harder to conceal.

Pakistan has never possessed this combination of infrastructure at today’s scale.

Technology, however, cannot make the final decision.

Institutions do.

The September agreement with trader organisations shows the unfinished work clearly. FBR officials are not merely deploying software. They are going into markets and negotiating the practical expansion of the tax base.

That is where Pakistan’s next economic reform battle will be fought.

Not inside another IMF spreadsheet.

Inside the ordinary market.

Pakistan Now Has Fewer Excuses

When I look at Pakistan’s tax debate from Karachi, I no longer see the same problem I saw even a few years ago.

The old explanation rested heavily on cash and weak information.

Those constraints have not disappeared, but they are weakening.

Pakistan now has Raast operating at enormous scale. Millions of merchants have entered digital-payment channels. FBR is expanding digital invoicing and improving audit systems.

Yet the retailer-tax target was still missed.

That contradiction tells us something.

Pakistan’s undocumented economy did not survive every government simply because the state could not see it.

For a long time, the state found some taxpayers easier to reach than others.

Digitalisation is gradually removing that excuse.

What happens next will reveal whether Pakistan’s documentation problem was mainly technological, or whether the harder barrier was always institutional.

A QR code on a Karachi shop counter cannot answer that question.

But it may finally force Pakistan to confront it.