Zafar Iqbal
Pakistan’s tax story has become a familiar one, repeated year after year with only the numbers changing. The Federal Board of Revenue has been quick to celebrate an 86 percent jump in collection when measured in dollar terms over the last three years. On the surface, that sounds like a genuine success. Look closer, and the picture tells a different story altogether. The tax net has not widened. The number of taxpayers has not grown in any meaningful way. No new sectors have been pulled into the formal tax fold. What has happened instead is simple and troubling: the same narrow pool of existing taxpayers is being squeezed harder, again and again.
The raw numbers deserve scrutiny too. FBR collected Rs13 trillion in the last fiscal year. That figure falls more than Rs500 billion short of the IMF’s latest projection, and it misses the earlier target by nearly a trillion rupees. As a share of GDP, collection stood at 10.2 percent, actually a touch lower than the previous year. So where does the celebrated 86 percent dollar-term increase come from? Mostly from arithmetic, not achievement. The base year, FY23, was artificially low because of a sharp currency depreciation at the time. Compare today’s rupee collection against that depressed dollar base, and the growth looks impressive. But many economists now believe the rupee itself is overvalued. Once that adjustment happens, as it eventually must, the flattering dollar comparison will shrink considerably.
Business owners across the country tell a consistent story about how the final numbers were reached. FBR, as it does every year, leaned hard on advance tax payments in June, squeezing whatever it could out of existing filers to inch closer to the target before the fiscal year closed. This is not tax policy. This is tax pressure, applied at the last possible moment, on people who are already inside the net.
Now comes the harder part. FBR must achieve growth of more than 17 percent in FY27 to reach Rs15.3 trillion. Think about what that target actually requires. No major new taxes have been imposed. Rates have not gone up. In fact, some rates have come down here and there. So how exactly does a stagnant economy, with a shrinking tax base and no new revenue measures, produce 17 percent growth in collection? The honest answer is that it cannot, not through natural expansion. The only path left is more pressure on those already paying.
And that pressure is already visible. The economy itself shows no real momentum, which means the natural, organic increase in tax collection will remain limited no matter what officials hope for. FBR’s response, predictably, will be to push harder on recoveries, harder on audits, harder on the businesses that are already compliant and already exhausted. Business communities describe a climate of fear settling in. What is missing entirely is an actual revenue strategy, one built on expanding the base rather than squeezing it further.
There is also a deeper unfairness running through the entire system: the dichotomy in how different income types are taxed. Certain categories of income face rates of just one percent, sometimes even less. Other categories are taxed at more than 40 percent. The government continues to hand out concessions for anything that brings in dollars, whether from IT exports, freelance earnings, or remittances from abroad. In the chase for foreign currency, the domestic economy is left to suffocate under the weight of an unbalanced system.
There is only so much the formal sector can absorb. Large formal companies, even after some marginal rate reductions, are effectively surrendering more than half their income to taxes. Under these conditions, why would any business choose to expand, to invest, to build capital? The incentive simply does not exist. The minimum tax regime is making matters worse for specific industries, textiles in particular, and that will directly hurt Pakistan’s ability to grow its goods exports at a time when the country desperately needs foreign exchange from trade, not just remittances.
Documentation reform, the one measure that could genuinely widen the tax net over time, remains largely absent from the conversation. Meanwhile, the fiscal targets depend partly on roughly Rs1 trillion in grants expected from the provinces. This will inevitably push provincial governments to chase more revenue of their own, and businesses are already feeling that pressure through sales tax on services at the provincial level.
The human cost of all this rarely makes it into the official statements. Businesses are not just handing over a larger share of their income. They are spending more time, more resources, and more energy simply managing tax compliance, time that could otherwise go toward actual productive work. The overall sentiment among businesses is one of exhaustion and unease, and that unease is precisely what keeps new investment sitting on the sidelines.
Nothing suggests this pattern will break this year. FBR’s collection target is expected to harden into a binding IMF condition by December 2026, which means the pressure on existing taxpayers will likely intensify rather than ease. The government urgently needs to rethink its entire approach. Investment cannot recover as long as capital keeps flowing toward government borrowing instead of productive enterprise, and as long as government spending itself remains inefficient. Chasing the same taxpayers harder every year is not a strategy. It is a slow way of running out of people to chase.
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