Pakistan fiscal revenue has nearly doubled in just two years, climbing from Rs. 9.6 trillion to Rs. 18 trillion. While this sharp increase may look as a sign of economic strength, a closer look reveals that this growth is mostly driven by higher tax rates rather than a broader or better economic base.
This article explores the core drivers behind Pakistan’s revenue surge, the regressive nature of current tax policies, the sectors left untaxed, and the reform strategies necessary for long-term fiscal sustainability.
The government’s increased revenue is not rooted in structural reform, but rather in sharp hikes in indirect taxes and an expanded base of taxation. Let’s break this down:
The government increased the GST to 18%, with luxury goods facing a steep 25% tax. This move played a central part in boosting revenue but came at the expense of consumers, especially those in lower-income brackets. According to EY tax alert, this increase was a core component of the fiscal year budget planning.
Additional revenue was extracted through higher federal excise duties (FED) on tobacco, beverages, and other harmful products. This aligns with global trends, and in Pakistan, it was aimed at generating funds while discouraging consumption. A 2025 Economics for Health policy brief confirmed that this strategy significantly boosted tax collections from the tobacco industry.
Perhaps the most notable development is the planned introduction of a new agricultural income tax, estimated to raise over Rs. 500 billion in FY 2025–26. This sector had previously escaped meaningful taxation, despite its substantial share in GDP. As reported by Business Recorder, this long-overdue reform has the potential to rebalance the tax burden.
Taxation is also evolving to include digital services and e-commerce giants. The government has introduced specific levies targeting foreign digital platforms, impacting companies like Google and Netflix. According to the Information Technology and Innovation Foundation (ITIF), Pakistan is among a growing number of nations pushing to tax global tech firms operating without a physical presence.
Despite the record-breaking revenue numbers, there are valid concerns about fairness and long-term viability.
Indirect Taxes Hurt the Poor
The bulk of tax revenue is coming from indirect taxes, like GST and FED, which affect every consumer equally, regardless of income. This regressive structure means that low-income households are disproportionately burdened. A World Bank report recently flagged Pakistan’s GST as a major driver of poverty.
“The poorest are paying nearly the same amount of tax on daily essentials as the wealthiest, which is fundamentally unjust,” the report highlighted.
Sectors like retail, real estate, and agriculture remain significantly under-taxed despite contributing heavily to the economy. For example, agriculture represents around 19% of GDP but contributes a minuscule share to the national tax pool, according to Business Recorder.
Pakistan’s tax compliance remains abysmally low. Only about 1% of the population files personal income taxes, placing an unfair load on salaried professionals and documented businesses. The Atlantic Council highlights this issue as a key barrier to sustainable revenue growth.
Rather than constantly increasing tax rates, the government must focus on expanding the number of taxpayers. This includes:
The government has set an ambitious revenue target of Rs. 13 trillion for FY 2025–26, hoping to widen the net instead of deepening existing taxpayer burdens. This is detailed in a recent Arab News report.
Better revenue collection is impossible without modernizing tax systems. The recently introduced Tax Laws (Amendment) Ordinance, 2025, empowers tax authorities to demand immediate payment upon assessment, significantly improving recovery. EY’s coverage of this law suggests this could be a major turning point in tax enforcement.
To counterbalance the regressive effects of indirect taxes, the government must strengthen social protection programs such as the Benazir Income Support Programme (BISP). These initiatives can help offset inflationary pressures for low-income citizens.
For more insights on the relationship between poverty and taxation, read this overview on indirect taxes and their effects.
Pakistan’s remarkable revenue surge in 2025 is an illusion of fiscal strength if it continues to rely solely on higher tax rates and regressive structures. A fairer, broader, and more enforceable tax regime is essential for true economic stability.
If left unaddressed, the current strategy could exacerbate inequality, discourage entrepreneurship, and weaken consumer spending—ultimately undermining the very growth the government aims to achieve.
For a more detailed breakdown of tax policies
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of GoWakeel. The content is provided for informational purposes only and should not be construed as legal, tax, or financial advice. GoWakeel does not endorse any products, services, or opinions mentioned in the article. For personalized guidance, please consult a certified tax advisor or legal professional.
No comments yet. Be the first to share your thoughts!
Have questions about our services or need personalized advice? Our team is ready to assist you.
