The taxation dilemma

It’s often said that the most dangerous lies are the ones we tell ourselves. Over the years, our leaders seem to have truly embraced the belief that shielding the wealthy, well-connected, and powerful from the tax net while extracting more from ordinary, law-abiding citizens is the proper way to govern. Even now, with the economy teetering on the edge of collapse, these privileged sectors are allowed to use pressure tactics, outright blackmail, or more often their government connections to dodge paying their fair share.
Once again, the tax-to-GDP ratio for the last fiscal year stood at a mere nine percent. Predictably, the government has remained silent about the true reasons behind this persistently low figure, despite being the fifth most populous country in the world. The reality is that, like every administration before it, this government succumbed to political pressures, leaving major sectors—agriculture, wholesale, retail, and real estate—either untaxed or under-taxed. Consequently, there’s little hope that this fiscal year’s outcome will differ from the last.
The new finance minister vowed to finally tax these untouchable sectors, much like his predecessors, but ultimately failed to deliver when the budget was announced. His promise held significant weight, especially as the country was on the verge of another crucial Extended Fund Facility (EFF) with the International Monetary Fund (IMF). Taxing the untaxed affluent sectors could have created the fiscal space needed to meet the stringent “upfront conditions” set by the IMF.
However, when the time came, the heavy tax burden was not placed on these wealthy groups but on the common, hard-working citizens. These individuals are already bearing the brunt of the national debt, forced to pay taxes despite their real incomes lagging behind historical inflation and rising unemployment.
The Federal Board of Revenue (FBR) surpassed its revenue collection target of Rs6,707 billion during July-March (2023-24), collecting Rs6,710 billion in this period. With the current pace of revenue collection, tax authorities are optimistic about meeting the assigned target of Rs9.4 trillion for 2023-24. “The tax machinery will meet the assigned tax collection target of Rs9.4 trillion for 2023-24. Any shortfall due to import compression in the coming months will be addressed through domestic taxes, especially direct taxes. However, there will be no mini-budget for the remainder of 2023-24,” an official stated.
According to data released by the FBR, by the end of the third quarter of the current financial year, the FBR collected Rs6,710 billion against a target of Rs6,707 billion for the first nine months, marking an increase of Rs3 billion. The FBR has issued refunds amounting to Rs369 billion during July-March (2023-24), compared to Rs254 billion during the same period last year.
The FBR continues to register a 30% growth in revenue collection compared to the first nine months of the previous financial year. In March 2024 alone, the FBR met its target by collecting Rs 879 billion and issued refunds totaling Rs 67 billion, compared to Rs 22 billion in March 2023.
Over the years, our governments have shielded the wealthy, well-connected, and powerful from the tax net while extracting more from ordinary, law-abiding citizens. Even now, with the economy teetering on the edge of collapse, these privileged sectors are allowed to use pressure tactics, outright blackmail, or more often their government connections to dodge paying their fair share.
Agriculture, for example, contributes less than one percent to provincial revenue figures. In such circumstances, one would expect a dedicated central government to levy agricultural taxes at the same rates as those paid by ordinary citizens and then deduct that amount from the annual NFC transfers.
But since the central government is also populated by the same feudal lords and industrial barons, it’s no surprise that such sensible ideas never see the light of day. And so, we continue in this endless cycle.
The big problem is that the well is running dry. Most common Pakistanis have seen their real incomes plummet due to the economic downturn over the last few years, marked by unprecedented inflation and unemployment.
As they earn significantly less in real terms but are forced to pay higher taxes—just so the government can meet the IMF’s conditions and stave off default—it’s only a matter of time before we hit a critical breaking point. For a moment, it seemed this time might be different. This government, taking office after a highly controversial election, promised to understand the severity of the situation and pledged to do whatever was necessary to fix the economy.
And it genuinely appeared that the new finance minister was serious about reforming the tax system; that he would bring the precise, uncompromising logic of the banking sector to the finance ministry and straighten out the budget. However, it was not to be. The issue is not just our inability to expand the tax net and increase revenue. The real problem is that the state has no genuine interest in doing so.
For a moment, it seemed this time might be different. This government, taking office after a highly controversial election, promised to understand the severity of the situation and pledged to do whatever was necessary to fix the economy. And it genuinely appeared that the new finance minister was serious about reforming the tax system; that he would bring the precise, uncompromising logic of the banking sector to the finance ministry and straighten out the budget. Alas, it was not to be. The issue is not just our inability to expand the tax net and increase revenue. The real problem is that the state has no genuine interest in doing so.