By S.M. Inam
Pakistan’s economy stands at a critical juncture, burdened by a deeply flawed tax structure that has contributed to a staggering PKR 87 trillion in external debt. This debt, coupled with systemic inefficiencies and widespread tax evasion, threatens to undermine any attempt at economic recovery. In an environment where the tax base remains narrow and tax compliance is selective at best, the country’s fiscal health has been reduced to a balancing act on the brink of collapse. A core issue hampering fiscal stability is the judicial backlog of tax cases. Thousands of cases, valued in the billions, remain unresolved in Pakistan’s courts, effectively freezing crucial revenue that could otherwise be reinvested into public services and debt reduction. The enduring delays serve as an unwelcome incentive for tax evaders, who exploit legal limbo to perpetuate a shadow economy. This black market, propped up by smuggling and tax-exempt activities, is so vast it rivals the formal economy—a reality that has come to symbolize the dysfunction of Pakistan’s financial apparatus.
The Federal Law Minister, Azam Nazeer Tarar, previously revealed that PKR 2 trillion in potential tax revenue lies entangled in court-mandated stays. Such a vast sum, if recovered, could ease inflationary pressures and relieve responsible taxpayers by mitigating some of the economic strain. Similarly, Chief Justice Yahya Afridi recently highlighted the urgency of PKR 97 billion worth of tax cases stagnating in the Supreme Court, prompting the formation of a committee comprising Federal Board of Revenue (FBR) officials and economic specialists to expedite resolutions and propose reforms. Their mandate underscores the necessity for judiciary-government collaboration to unlock critical funds and address Pakistan’s fiscal emergency. Under the leadership of Prime Minister Shehbaz Sharif, the government has signaled an intent to tackle these issues, focusing on expanding the tax net to capture delinquent taxpayers, whether individuals or corporations. Sharif’s early directive to reform the FBR aligns with his appeals to the judiciary for faster resolution of high-value tax cases. By encouraging Chief Justice Afridi to prioritize these cases, Sharif has demonstrated a commitment to breaking down institutional barriers to reform.
Afridi’s response, a push to accelerate FBR reforms, represents a rare example of alignment between branches of government—a positive development but one that must translate into sustained collaboration for enduring change. However, the scope of these efforts, commendable as they are, may only scratch the surface without comprehensive restructuring. Transparency and efficiency within the FBR are imperative, and they can only be realized through an integrated, multi-pronged approach. Modernizing the FBR through full digitalization would be a significant step, reducing human interference and, thus, the opportunity for corruption. Additionally, legislative changes are needed to close legal loopholes that empower tax evaders and undermine compliance efforts. Such reforms, though challenging, are essential to building a fairer and more reliable tax regime.
A robust tax system, coupled with judicial reform, is the foundation upon which Pakistan’s fiscal revival can be built. Streamlining tax collection, reducing backlogs, and enhancing transparency are not mere bureaucratic upgrades but essential measures for national stability. The recovery of PKR 97 billion from pending cases could set a powerful precedent, paving the way for the eventual release of PKR 2 trillion currently locked up across the judicial system. Pakistan’s economic crisis cannot afford further delay. Restoring fiscal health demands immediate, coordinated action across the government and judiciary. A transparent, equitable tax system will not only ease Pakistan’s debt burden but also build trust among citizens, creating a sense of shared responsibility essential to any functional economy. It is only through decisive, concerted efforts to reform the tax system that Pakistan can hope to regain control of its finances, steer away from perpetual crisis, and build a foundation for sustainable economic growth.
(The writer is a senior analyst on national international affairs, can be reached at inam@metro-morning.com)
