Tackling the twin menaces of black money and tax evasion has always been a challenge and failure in Pakistan. The study, ‘What is hidden, in the hidden economy of Pakistan? Size, causes, issues and implications’, by Ahmed Gulzar, Novaira Junaid and Adnan Haider, shows that corruption and tax evasion are not only causing an expansion in the size of the informal economy but also hampering the growth rate, thereby adding more to economic uncertainty, income inequality and poverty. Successive governments in Pakistan-military and civilian alike, instead of dealing with these issues have been pardoning and appeasing tax evaders through various laws and amnesty schemes.It is now reported in the Press that the coalition government of Pakistan Tehreek-i-Insaf (PTI) is also considering the same path, contrary to what Premier Imran Khan has been saying before coming to power. The ever-growing informal economy, which is ironically called ‘The Secret Strength of Pakistan’s Economy’, has grown to the extent that tax gap is now over150%. The real tax-to-GDP ratio if we take into account the monstrous size of unreported (untaxed) economy will be much less than claimed.Tax collection by Federal Board of Revenue (FBR), after blocking refunds and taking advances of billons of rupees, is not enough to bridge the fiscal gap that last year was over 6% of GDP. The accumulated size of informal (untaxed) economy is around Rs. 50 trillion. If flat rate of 10% is offered to all those who have failed to pay income tax in the past, in just one year collection can reach Rs. 5 trillion. This will help enhancing income tax alone to Rs. 6 trillion in future as every person would be on tax roll. In fiscal year 2017-18, FBR collected merely Rs. 3.75 trillion against documented GDP of around US$ 312 billion and income tax net collection was only Rs.1528.5 billion. In view of the huge size of untaxed economy, a paradigm shift in policy is needed to replace the entire taxation system for fiscal stabilization. The equation is simple. Federal government needs at least Rs. 8 trillion of revenue (for meeting all development and non-development expenditure), for which determination of a fair tax base is imperative. The current complex system, only favours a few thousand officers and their staff along with people having money power and who can blatantly flout the law. A simple flat rate tax that is neither burdensome nor difficult to implement is the solution but it would deprive the bureaucracy and some vested-interests of illegal enrichment. Nonetheless, the government of PTI has no option but to dismantle the existing, out-dated and anti-growth tax system if it is serious to overcome the twin malaises of fiscal deficit and debt burden. As far as sales tax is concerned, Pakistan needs harmonized sales tax (HST) which should be single-digit. All tax collections should be through a National Tax Authority (NTA) which should replace all existing authorities at both federal and provincial levels The tax system that will work smoothly for Pakistan, keeping in view our peculiar socio-economic circumstances and mind-set of masses, must be a flat rate with no compliance hassles. All taxes should be merged into one single tax with complete assurance to the masses that they would be free from any kind of harassment; and money collected would be spent towards their welfare. The agenda of fair taxation cannot succeed if wastage of public funds and its abuse by the rulers continue unabated. The quid pro quo for paying taxes is as important as the system to collect tax. Where the public is blamed for not paying their due share, public authorities are equally, if not more, responsible for indulging in corrupt means taking cover of complicated procedures that eventually lead to poor collection of revenue. The tax base with respect to direct tax vis-à-vis fair distribution of incidence can be achieved by imposing 10% flat rate tax on net income of individuals and 2.5% of tax on net wealth of Rs. 20 million whichever is higher and reducing corporate tax rate to 20%.This simple taxation would induce voluntary compliance provided all the citizens are aware of the fact that competent and effective tax machinery exists having a tax intelligence system that can easily detect tax avoidance. Without this deterrence even the new system which is a great deal simpler, will be unworkable. Nowhere in the world is proper collection of taxes possible without a strong enforcement apparatus. However, the apparatus should be friendly and firm-friendly, to the extent of educating and guiding the people for fulfillment of their tax obligations, and firm to the extent of punishing willful defaulters. As far as sales tax is concerned, Pakistan needs harmonized sales tax (HST) which should be single-digit. All tax collections should be through a National Tax Authority (NTA) which should replace all existing authorities at both federal and provincial levels. Further details of simplified taxation can be seen in a paper, ‘Towards Flat, Low-rate, Broad and Predictable Taxes’ [PRIME Institute, Islamabad].National and provincial assemblies should pass a law agreeing on establishment of NTA responsible for collecting all taxes imposed by the federal and provincial governments. This would facilitate people to deal with a single revenue authority rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under Council of Common Interest [Article 153] and its control can be placed under National Economic Council [Article 156]. The provinces should also feel responsible for better and efficient tax collection. Presently they are isolated and rely on distribution from the divisible pool whereas the Federal Board of Revenue annually collects less than the assigned revenue target. The responsibility to collect revenues should be joint and several giving a participative sense to all federating units. The NTA should consist of officers and staff representing the federation of Pakistan as in taxes, both the centre and provinces have equal stakes. If the size of the pie grows every federating unit will get more and the Centre will also have more money at its disposal. For NTA, an all Pakistan Tax Service should be established. Recruitment for All Pakistan Tax Service must be independent of the present Central Superior Services structure. Competent people having knowledge in accounting, law, IT and administration should be selected through a special Board, comprising members from the existing Federal and Provincial Public Service Commissions and private sector having experience in these areas. The optimum collection of taxes fairly and without hampering growth should be the focus of tax reforms. For this purpose, establishment of NTA and automated Tax Intelligence System are prerequisites. The system should be able to send quarterly information to potential taxpayers about their economic activities so that they can be informed in advance as to how their incomes and expenditure should finally look like in their tax declarations. At the same time, the State must demonstrate with actions and not mere lip-service that there is prudent spending of public money through a transparent process enjoying the confidence of the people. The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)