By S.M. Inam
The latest revenue figures for the fiscal year ending June 2025 expose a distressing reality about Pakistan’s longstanding struggle with tax collection—a struggle that seems as much political as it is economic. These numbers do more than reveal a shortfall in government coffers; they reflect a deeper, systemic failure to forge a fair, effective, and inclusive tax system. The much-hyped trader-friendly tax schemes introduced last year have spectacularly failed to bring key economic players, particularly retailers and exporters, into the fold. Meanwhile, the salaried class continues to bear an unjust and disproportionate burden, serving as the backbone of a tax system skewed against equity and fairness. Taxation is, at its core, a social contract. It is a reciprocal agreement between the state and its citizens—taxpayers fund essential public services, from infrastructure to education, health care, and law enforcement.
In return, the state promises protection, opportunity, and a degree of social justice. Yet, in Pakistan, this compact is fraying at the edges. The ideal of a progressive tax system—where those who earn more pay a fairer share—is far from reality. Instead, a system riddled with loopholes and exceptions disproportionately taxes those least able to afford it, while powerful economic actors maneuver skillfully to avoid their fiscal responsibilities. The Federal Board of Revenue’s figures paint a stark picture. The salaried class alone contributed an unprecedented Rs545 billion in income tax, making them the single largest source of direct tax revenue. By contrast, exporters, who enjoy earnings in dollars and therefore theoretically hold greater capacity to contribute, paid only Rs180 billion. Traders, many entrenched within the political landscape and benefiting from systemic protection, chipped in a mere Rs62 billion through sections 236G and 236H of the Income Tax Ordinance.
The stark imbalance is impossible to ignore: salaried employees paid more than double the combined contributions of exporters and traders. This is not just an issue of fairness—it is a ticking time bomb for economic sustainability and social cohesion. The steep increase in tax collection from salaried individuals—from Rs367 billion the previous year to Rs545 billion in 2024-25—was not a reflection of increased prosperity or goodwill, but rather the automatic nature of their tax liabilities. Unlike many other segments of the economy, salaried individuals cannot easily manipulate or evade their taxes. Their earnings are transparent, deductions automated, and compliance enforced with relative efficiency. This has created a fiscal pressure cooker, with this class increasingly squeezed while others benefit from systemic exemptions and evasions.
Acknowledging this imbalance, the government has introduced modest relief measures for salaried taxpayers in the current budget. While these steps offer some respite, they fall short of what is needed to restore faith in a system so skewed it risks alienating a critical segment of the tax base. The real solution lies not in piecemeal adjustments, but in bold, comprehensive reform. One such reform focuses on the agricultural sector, a historically tax-exempt domain despite its significant profitability and economic importance. The establishment of a special committee to explore uniform taxation, potentially based on crop output or water usage, signals a step in the right direction. However, the path from discussion to meaningful implementation remains uncertain, clouded by political resistance and bureaucratic inertia.
Similarly, the business community must be brought into sharper focus. While many industrialists comply with tax regulations, there remains a vast shadow economy and informal sector that operate well beyond the reach of tax authorities. Expanding the tax net to include these hidden players is critical—not only for revenue generation but for ensuring fairness across economic strata. The broader problem is Pakistan’s narrow tax base. It is a structural weakness that no amount of revenue collection can fully mask. A convoluted, opaque, and cumbersome tax administration discourages voluntary compliance, particularly among small and medium enterprises that form the backbone of the economy.
A simplification of the tax system could be transformative. Lessons can be drawn from neighboring countries such as India, which uses a unified identification system combining national ID and tax numbers to streamline compliance and enforcement. Adopting such technology and processes could reduce bureaucratic hurdles and make tax payment less daunting for ordinary citizens and businesses alike. Yet, none of these technical fixes will succeed without political will. Successive governments have hesitated or failed to confront the entrenched interests of traders, exporters, and landowners—the very groups that enjoy privileged status within the current system. Challenging these power structures demands courage and vision. Until then, reforms will remain superficial, and tax evasion and avoidance will continue to thrive.
Ultimately, the challenge before Pakistan is not simply to increase tax revenues—it is to do so justly. The goal must be a system where paying taxes is straightforward, non-burdensome, and fair. A system where no sector enjoys disproportionate exemptions or opportunities for evasion. Such a system would not only boost revenues but also rebuild public trust, an essential ingredient for any modern, functioning state. Without this foundational trust, the silent majority—the salaried taxpayers who keep the system afloat—may grow weary and disillusioned. Meanwhile, those who evade their responsibilities will do so with impunity, widening social divides and undermining the very legitimacy of the state.
Pakistan stands at a crossroads. The road ahead demands honesty, accountability, and a recommitment to fairness. Reforming the tax system is not just an economic imperative; it is a moral one. The state must deliver on its promise to all citizens by ensuring that taxation is equitable and transparent. Only then can Pakistan hope to build a sustainable economy and a society that believes in the rule of law and the shared responsibility of citizenship. The latest revenue figures should serve as a wake-up call—not just for policymakers but for every Pakistani who expects their country to be governed justly and effectively. Until the tax system reflects true fairness, the foundations of public trust will remain fragile, and the dream of a prosperous, inclusive Pakistan will remain just that—a dream.
(The writer is a former government officer and a senior analyst on national and international affairs, can be reached at inam@metro-morning.com)
