By: Hira Ali Malik
As Pakistan heads into budget season, all eyes are on the finance team and the Sharif government. Their task is not just to manage the economy but to steer it from stabilisation to sustainable growth. While their first year under the IMF programme has met most expectations, the true test of their mettle lies in the coming years. The stakes are high, and the nation simply cannot afford to be complacent.
Amid some recent geopolitical wins and an improved sense of security, the real challenge Pakistan faces is economic. Our economic battles are far from over. One area demanding urgent attention is our tax system, specifically our dismal tax-to-GDP ratio, which stubbornly sits around 10.6%, with hopes of nudging it to 11% this year.
Why Tax Reform is Non-Negotiable
For far too long, the burden of taxation has been borne almost exclusively by the already tax-compliant segments—particularly the salaried class. This needs to change. Widening the tax net to include Pakistan’s massive informal and retail sectors is crucial. These sectors remain largely outside the formal economy, yet they are essential for broad-based growth and fiscal stability.
The salaried class, in particular, has faced what can only be described as a perfect storm in recent years. Currency depreciation has eroded their real incomes, income taxes have increased, job opportunities have dwindled, and the cost of living has soared due to high utility bills and indirect taxes. It’s a recipe for a shrinking middle class and stunted growth.
The Middle Class: Backbone of Growth
Pakistan cannot ignore the economic clout of its middle class. With 40% of the population below the poverty line, the combined lower and middle classes represent over 200 million citizens. In developed economies, it’s the salaried workers who drive productivity and demand. We must move in that direction too.
Offering tax relief to the salaried class is not just about fairness—it’s about smart economics. Cutting taxes for salaried individuals would put more money directly back into the economy. With their higher marginal propensity to consume, this liquidity would boost demand, spur growth, and eventually even enhance tax revenues. More disposable income would also encourage savings, which in turn could lower borrowing costs for businesses and the government alike.
A more moderate tax burden would also incentivise job creation and formal sector expansion. When employers consider take-home pay, lower tax rates can mean more hiring and more entrepreneurial activity—particularly among small and medium enterprises.
Time for Bold Reforms
Right now, Pakistan’s salaried and corporate tax rates are among the highest in the region. This environment stifles competitiveness and growth. We need a new vision—one that combines fairness with pragmatism.
It might be overly optimistic to convince the IMF that lower taxes will magically lead to higher revenues—Pakistan’s historical credibility issues are no secret. But that doesn’t mean we can’t build a credible case for structural reform. Such a plan would include privatising bleeding state-owned enterprises like PIA, expanding the tax net to the massive retail sector, imposing higher taxes on speculative real estate gains, and crucially, devolving agricultural tax collection to the provinces. This would finally bring powerful landowners—who’ve long escaped taxes—into the fold.
Without these structural changes, Pakistan risks remaining a nation where military might overshadows economic independence. In today’s world, true sovereignty is measured not just in missiles and tanks but in economic resilience and self-reliance.
