As Pakistan’s budget unveiling approaches, a win-win is still possible
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In June the Pakistan government will unveil a national budget for the new fiscal year beginning July. For most Pakistanis, this is a time of dread rather than an expectation of fiscal relief. It is about calibrating whether under the new tax and revenue measures their inflation-impacted salaries will retain the ability to last the month and electricity bills still remain unbearable, and whether the state will once again demand sacrifice from those who are easiest to tax while sparing organized businesses powerful enough to negotiate their way out.
This year the real budget question is not simply how to satisfy demands by the country’s principal lenders like IMF and World Bank to raise additional revenue through direct taxation or to patch up worsening federal-provincial tensions on division of revenue share between them. It is whether the state can continue pretending that a budget is only about tweaking percentages in favor of lenders and governments rather than fundamentally redesigning it to be fair to 240 million citizens.
From a citizen’s perspective, the problem is painfully clear. A vast majority simply want to build bearable and productive lives instead of being overtaxed into the joyless margins of bare existence. Sure, Pakistan needs fiscal stability but the state keeps pursuing it in the least fair way possible: by squeezing those already visible to the tax machinery and borrowing heavily to sustain its bloated bureaucracy and prestige projects devoid of public ownership.
Pakistan’s tax-to-GDP ratio is around 10 percent, well below South Asia and global standards. Yet within this narrow tax net, the burden falls heavily on salaried households because their incomes are documented and taxes are deducted at source. Official data shows salaried Pakistanis paid Rs.368 billion in income tax in FY2024, up nearly 40 percent from Rs264 billion a year earlier. By end FY2025, this had climbed to about Rs545 billion. This is a staggering triple more than the tax paid by exporters and eight times that paid by retailers. This absence of basic broad-based tax reform is evidence of a state choosing easy extraction of its vulnerable workers over equitable governance.
Any expectation of a ‘win-win’ budget cannot come without an indictment of how the state has governed. Pakistan’s problem is not only that it collects too little revenue; it is that it protects privilege while taxing compliance.
The Economic Survey 2024-25 reported tax expenditures of Rs5.8 trillion, up from Rs3.8 trillion a year earlier. Of this, sales tax exemptions alone accounted for more than Rs4.2 trillion, while income tax exemptions and concessions for the rich rose to over Rs800 billion.
A government that pleads scarcity while giving away trillions in exemptions cannot honestly claim there is no alternative to overtaxing the formal middle.
Adnan Rehmat
A government that pleads scarcity while giving away trillions in exemptions cannot honestly claim there is no alternative to overtaxing the formal middle. Nor can it keep hiding behind federal complexity. If Islamabad and the provinces can negotiate resource shares and political bargains, then surely they can also agree on a fairer distribution of tax effort and public responsibility. What has been missing is not administrative possibility but political courage.
The same elite-centric distortion is visible in the energy sector, where governance failure has been passed directly to consumers. Pakistan’s power crisis is no longer just about supply but about expensive contracts, policy evasions and a refusal to confront entrenched interests. Capacity payments alone add over 25 percent per unit to electricity costs. In plain language, citizens are being billed not only for the power they use but for years of bad planning, contractual excess and institutional failure.
This is where the government’s failure becomes morally and politically indefensible. A state that cannot reduce losses, improve recoveries from powerful defaulters, rationalize capacity payments or transparently unwind bad energy deals has no business balancing its books on salaried households. Nor can it keep invoking austerity while families absorb rising electricity costs, stagnant purchasing power and shrinking disposable income.
Pakistan Bureau of Statistics data puts average monthly household income at Rs82,179 and average household consumption at Rs79,150, leaving almost no room for shocks. When utility bills consume such a large share of income, taxation stops looking like a civic obligation and starts looking like punishment for formal work. That erosion of trust is itself a governance failure.
So, is a win-win budget still possible? Yes, but only if the government abandons its reflexive preference for elite accommodation and citizen extraction. That means broadening the tax base toward undertaxed and untaxed segments and tying any new federal-provincial compact to measurable service delivery. Above all, the budget must acknowledge a simple democratic truth: citizens do not exist to finance elite bargains but for governments to govern fairly.
– Adnan Rehmat is a Pakistan-based journalist, researcher and analyst with interests in politics, media, development and science.
X: @adnanrehmat1
