Zafar Iqbal
The debate over extending taxation to the merged districts of Khyber Pakhtunkhwa and the Malakand region has once again exposed one of Pakistan’s deepest policy dilemmas. Lawmakers opposing new taxes argue that these regions have endured decades of conflict, displacement, insecurity and administrative neglect. They insist that imposing taxes before delivering development would amount to another injustice against communities that have already paid a heavy price for circumstances beyond their control.
There is considerable truth in the historical grievances behind these objections. The former Federally Administered Tribal Areas (FATA) and parts of Malakand suffered years of militancy, military operations, economic disruption and institutional isolation. Entire communities were displaced, businesses collapsed, infrastructure deteriorated and public services remained inadequate. Even after the constitutional merger of FATA with Khyber Pakhtunkhwa in 2018, the pace of integration has been slower than many had hoped. Roads, schools, hospitals, police services, courts and administrative institutions continue to require significant investment. Citizens are therefore justified in demanding that governments honour the promises made during the merger process.
However, acknowledging these legitimate concerns does not automatically justify a permanent exemption from taxation. Development and taxation are related, but they are not identical issues. One concerns the state’s responsibility to invest in neglected regions, while the other concerns the responsibility of citizens and businesses with economic capacity to contribute towards financing public services. Conflating these two responsibilities risks weakening both.
Many opponents of taxation invoke the famous slogan, “No taxation without representation.” Although emotionally appealing, the historical context of this principle is often misunderstood. The phrase emerged during the American colonial struggle against British rule in the eighteenth century. American colonists objected not because taxes existed, but because those taxes were imposed by a Parliament in London where they had no elected representatives. Their complaint centred on political exclusion and the absence of democratic accountability rather than taxation itself.
Pakistan’s merged districts and Malakand occupy an entirely different constitutional position. Their citizens elect members to both the National Assembly and the Khyber Pakhtunkhwa Assembly. Their representatives participate in passing laws, approving budgets and debating fiscal policies. They possess the same democratic rights enjoyed by representatives from every other region of Pakistan. Since they are represented within the institutions that impose taxes, the historical principle cannot reasonably be used to reject taxation altogether.
Political representation grants citizens the right to question tax policies, demand transparency, challenge unfair taxation and ensure that collected revenues are spent responsibly. It does not create an unlimited right to remain permanently outside the national tax framework. Democratic participation involves both rights and responsibilities, and taxation is one of the fundamental responsibilities that accompanies political equality.
The more compelling argument concerns the government’s own performance. The merger of the former tribal districts was accompanied by ambitious commitments from both federal and provincial governments. Authorities pledged to improve governance, strengthen policing, expand judicial institutions, upgrade educational facilities, modernise healthcare systems and develop physical infrastructure. Progress in fulfilling many of these commitments has unfortunately remained slow and uneven. Delays in funding, administrative bottlenecks and weak implementation have frustrated local communities and undermined public confidence.
Governments must therefore be held accountable for honouring these commitments. Citizens deserve transparency regarding development funds, implementation schedules and project completion. Yet governmental shortcomings cannot become a permanent justification for exempting economically active individuals and businesses from taxation. Otherwise, any region dissatisfied with public services could make the same claim, making a coherent national tax system impossible.
Geography alone is also an imperfect basis for tax policy. Broad regional tax exemptions rarely benefit the poorest citizens because households with little or no taxable income already pay minimal direct taxes. The principal beneficiaries are often larger businesses, traders and commercial enterprises generating taxable profits. Consequently, blanket exemptions frequently protect commercial interests far more than vulnerable families.
Such exemptions also create distortions within the economy. Businesses operating in neighbouring districts may face entirely different tax obligations simply because they fall on opposite sides of an administrative boundary. Companies located in exempt areas enjoy an artificial competitive advantage over equally efficient firms operating elsewhere. This encourages businesses to relocate transactions, manipulate documentation or channel commercial activities through tax-exempt jurisdictions. The result is greater tax avoidance, weaker documentation and reduced economic efficiency.
These regional exemptions also complicate Pakistan’s already fragile fiscal system. The country’s tax structure relies heavily on a relatively small number of documented taxpayers, including salaried employees, registered corporations and consumers paying indirect taxes. Meanwhile, substantial portions of agriculture, retail trade, wholesale markets, real estate and the informal economy continue to remain either lightly taxed or insufficiently documented.
The consequence has become increasingly apparent. Since the tax base remains narrow, governments repeatedly extract more revenue from those who already comply. Income tax rates increase, withholding taxes expand and indirect taxation grows more prominent. Honest taxpayers shoulder a disproportionate burden, while many economically capable sectors continue contributing comparatively little. This imbalance fuels public resentment and weakens voluntary compliance.
Pakistan’s fiscal challenge is therefore not simply that taxes are high. Rather, too few people contribute towards financing the state. Every additional exemption further narrows the tax base, forcing governments to depend even more heavily upon existing taxpayers. Such a cycle becomes increasingly unsustainable and ultimately undermines confidence in the fairness of the entire tax system.
Supporters of continued exemptions often argue that governments should first provide quality public services before asking citizens to pay taxes. At first glance, this appears entirely reasonable, particularly in regions where the state’s presence has historically been inconsistent or coercive. Nevertheless, applying this principle universally creates an impossible standard. Public services require financial resources. If governments delay taxation until healthcare, education, infrastructure and security reach ideal standards, nearly every underdeveloped region in Pakistan could legitimately refuse taxation indefinitely.
Conversely, governments cannot expect citizens to comply willingly with tax obligations while delivering poor governance, limited transparency and inadequate public services. Taxation and service delivery must therefore progress simultaneously rather than sequentially. Governments must demonstrate accountability while citizens gradually assume greater fiscal responsibility.
The most practical solution lies in a carefully managed transition instead of abrupt taxation or perpetual exemption. Small businesses, low-income households and economically vulnerable communities should receive appropriate protection through simplified tax procedures, reasonable income thresholds and targeted relief measures. Larger commercial enterprises with stronger financial capacity should gradually become part of the normal national tax framework over a clearly defined period.
Alongside this transition, federal and provincial governments should publish comprehensive annual reports detailing development commitments, allocated budgets, completed projects and remaining obligations for every district within the merged areas and Malakand. Transparent reporting would allow citizens to monitor progress while strengthening trust between taxpayers and the state.
Elected representatives should play a constructive role throughout this process. They must vigorously advocate for timely development funding, efficient implementation and fair taxation tailored to local economic conditions. They should ensure that vulnerable households are protected while encouraging sustainable economic growth. However, rejecting taxation altogether offers no realistic solution to Pakistan’s fiscal challenges or the developmental needs of these regions.
Pakistan cannot establish a fair and sustainable tax system if every organised constituency demands permanent exemptions. Such an approach merely shifts the burden onto those who already pay taxes while weakening the state’s ability to finance development across the country.
The merged districts and Malakand unquestionably deserve accelerated development, stronger institutions and full implementation of every promise made during their constitutional integration. These demands are entirely legitimate and should be pursued with determination. Yet they do not create a permanent entitlement to remain outside Pakistan’s national tax system. Political representation guarantees equality before the law, and genuine equality requires sharing not only the benefits of citizenship but also its responsibilities.
