Pakistan’s Finance Minister has presented the near doubling of federal tax revenues over the past two-and-a-half years as evidence that economic reforms are beginning to deliver. On paper, the figures appear impressive. According to the government, the Federal Board of Revenue (FBR) collected more than Rs13 trillion during the 2025-26 fiscal year, surpassing its target of Rs12.83 trillion. Officials point to improved fiscal discipline, a narrowing budget deficit, expanded digitalisation and record tax refunds as proof that Pakistan’s revenue machinery is finally becoming more efficient. There is no question that improving tax collection is essential for a country that has struggled for decades with chronic fiscal deficits, repeated balance-of-payments crises and a growing dependence on international lenders.
Pakistan cannot build functioning public services, modern infrastructure or sustainable economic growth without increasing domestic revenues. Every serious economy depends upon an effective tax system. The problem, however, is not simply how much tax is collected. The far more important question is who is paying it. This is where the government’s celebratory narrative begins to unravel. Pakistan’s tax-to-GDP ratio has historically remained among the lowest in South Asia, fluctuating around 9 to 10 per cent for much of the past decade before recent improvements. Successive governments, regardless of political affiliation, have repeatedly promised to broaden the tax base rather than deepen the burden on those who already comply. Yet every fiscal year tells a familiar story. Revenue targets rise, but the easiest taxpayers to reach continue to bear the heaviest load.
The country’s formal salaried workforce has become one of the most heavily documented segments of the economy. Their taxes are deducted automatically before salaries even reach bank accounts. There is virtually no opportunity for concealment or negotiation. Meanwhile, millions working in the informal economy remain outside the tax net altogether, while many wealthy individuals continue to structure their financial affairs in ways that legally or illegally minimise their liabilities. The numbers illustrate this imbalance. Pakistan has a population exceeding 240 million, yet the number of active income tax filers represents only a small fraction of the population. Although tax return filings have increased in recent years due to digital initiatives and documentation drives, the country’s effective taxpayer base remains remarkably narrow relative to its economic size.
Instead of fundamentally expanding this base, governments have frequently relied upon indirect taxation, withholding taxes and increased levies on documented sectors because they are easier to administer. Indirect taxation has become one of the defining characteristics of Pakistan’s fiscal system. Every time consumers purchase fuel, electricity, mobile services or basic goods, they contribute to government revenues through sales taxes and other indirect charges. Such taxes make little distinction between rich and poor. A factory owner and a daily wage labourer pay the same sales tax rate when purchasing essential commodities. While progressive income taxation seeks to distribute the burden according to the ability to pay, indirect taxes often place a proportionately heavier burden on lower-income households, which spend a larger share of their earnings on daily necessities.
This structural imbalance is compounded by one of Pakistan’s longest-running political failures: the inability, or unwillingness, to tax wealth as effectively as income. Across successive governments, politically influential sectors have retained preferential treatment through exemptions, concessions, reduced rates or weak enforcement. Large landholdings, certain segments of agriculture, powerful commercial interests and influential property owners have often remained shielded from the full force of taxation. Meanwhile, documented businesses and salaried professionals face increasing scrutiny, audits and compliance requirements. This is not merely an administrative weakness. It reflects the deeper political economy of Pakistan. Those who shape fiscal policy frequently belong to the very social and economic elite that benefits from maintaining existing exemptions.
Parliamentarians, influential business groups, large industrial families, real estate investors and politically connected actors often possess the influence needed to resist reforms that would significantly affect their own financial interests. The result is a tax system that can appear highly aggressive towards those without political leverage while remaining remarkably cautious when confronting entrenched centres of wealth. The government deserves recognition for investing in digital reforms. The expansion of electronic invoicing, risk-based audits, artificial intelligence tools and automated refund systems has the potential to reduce corruption, improve efficiency and limit discretionary powers that have historically plagued the FBR. Digitalisation can strengthen compliance while making tax administration more transparent and predictable. Yet technology alone cannot solve what is fundamentally a political problem.
Artificial intelligence can identify suspicious transactions, but it cannot decide whether politically influential individuals will be investigated. Automated systems can improve documentation, but they cannot remove exemptions created through legislation. Digital reforms may modernise collection mechanisms, yet they cannot substitute for political courage. Pakistan’s repeated engagements with the International Monetary Fund have consistently emphasised the need for broadening the tax base. Almost every IMF-supported programme has highlighted low revenue mobilisation, widespread exemptions and weak enforcement among higher-income groups. Despite decades of reform commitments, many of the same structural weaknesses remain.
Governments routinely meet short-term revenue targets by increasing indirect taxes or tightening collection from existing taxpayers instead of undertaking politically difficult reforms that would permanently widen the tax net. This creates a cycle that undermines public trust. Citizens are more likely to comply voluntarily when they believe the tax system operates fairly. When ordinary workers see taxes deducted automatically from their salaries while affluent individuals openly display extraordinary wealth with limited visible tax contributions, confidence in the system inevitably erodes. Compliance becomes increasingly viewed not as a shared civic responsibility but as a penalty imposed upon those who cannot avoid it. The issue extends beyond questions of fairness. It directly affects Pakistan’s long-term economic development.
Excessive taxation of documented businesses discourages investment, limits formal employment and incentivises economic informality. Firms facing high compliance costs often struggle to compete with undocumented competitors operating outside regulatory oversight. This weakens productivity, reduces competitiveness and limits economic expansion. Equally concerning is the persistence of extensive tax expenditures. Every exemption, concession or preferential treatment granted to one group shifts a greater share of the fiscal burden onto everyone else. Pakistan’s annual budget documents regularly identify significant revenue losses resulting from tax exemptions and concessions. Greater transparency over who benefits from these measures and whether they continue to serve any genuine economic purpose remains essential if public confidence is to improve.
The Finance Minister is correct that stronger revenues contribute to macroeconomic stability. Lower fiscal deficits reduce borrowing pressures and strengthen investor confidence. These are important achievements. But macroeconomic stability built upon an inequitable tax structure risks becoming politically fragile. Fiscal sustainability cannot rest indefinitely on extracting more revenue from the same compliant taxpayers while leaving substantial pools of wealth lightly taxed or effectively untouched. Pakistan’s taxation debate has never been solely about numbers. It is about the relationship between the state and its citizens. A modern tax system functions not merely because governments possess the legal authority to collect revenue, but because taxpayers believe the burden is shared equitably and public funds are managed responsibly.
Celebrating record collections without confronting longstanding inequalities in tax policy risks mistaking administrative success for genuine reform. Collecting Rs13 trillion is undoubtedly a significant milestone. Yet the true measure of progress will not be how much money the state raises, but whether it finally builds a tax system in which economic privilege no longer determines fiscal responsibility. Until Pakistan’s political and economic elite are subjected to the same standards expected of ordinary citizens, claims of meaningful tax reform will remain incomplete, and the promise of fiscal justice will continue to elude the country.
