Page 78 - CMA Journal (Mar-Apr 2026)

The position of salaried individuals is especially telling. Tax Under the IMF-backed framework, the federation and
collection under section 149 rose sharply to around Rs 605 provinces have agreed to reassign certain expenditure
billion, marking a steep year-on-year increase. responsibilities and strengthen provincial taxation in areas
With marginal rates reaching 35%, in addition to surcharges, such as services, property, and agriculture. The NFP, signed in
salaried taxpayers continue to shoulder a burden that is September 2024, aims to improve governance and scal
difficult to justify on grounds of either equity or discipline.
sustainability. Whether it does so will depend entirely on implementation,
FBR's total collection rose to Rs 11.7 trillion in FY 2024–25, institutional alignment, and political will. Without those, it
pushing the tax-to-GDP ratio above 10% for the rst time in will remain another well-worded commitment with little
many years. Even so, the underlying questions of fairness, scal consequence.
breadth, and durability remain unanswered. Pakistan's scal crisis persists not because the country taxes
Another major weakness lies in tax expenditures. too little in the abstract, but because it has avoided structural
correction. Raising rates without xing expenditure waste,
Tax expenditures remain extraordinarily high. In recent
energy-sector distortions, tax expenditures, and
years, they have averaged more than one-third of total
intergovernmental scal imbalances only delays the next
collection, and in FY 2022–23 they exceeded 50% of revenue.
crisis.
Even after some reduction, they continue to erode the tax
base signi cantly. This is not a side issue. A system that grants Lasting stability will come only from combining revenue
extensive exemptions and preferences while raising rates on reform with institutional restructuring and serious
compliant taxpayers cannot claim either equity or efficiency. expenditure rationalization. Without that shift, Pakistan will
The scale of these exemptions and preferences is not remain trapped in the same cycle of de cits, borrowing, and
accidental. It lies at the heart of the state's weak revenue periodic external rescue.
capacity and undermines both fairness and efficiency in the Endnotes:
tax system.
Pakistan cannot keep relying on higher statutory rates and 1. Government of Pakistan, Pakistan Economic Surveys,
ad hoc levies. Beyond a point, heavier taxation discourages Chapters on Fiscal Development.
investment, depresses economic activity, and weakens 2. International Monetary Fund, Pakistan: History of
future revenue — the logic commonly associated with the Lending Arrangements.
Laffer Curve remains relevant here.
3. IMF, Pakistan Second Review under Extended Fund
A further complication emerged after the 18th Constitutional
Facility, December 2025.
Amendment. Provincial autonomy was strengthened, but scal
asymmetry also deepened. Provinces continue to depend 4. Federal Board of Revenue, Tax Expenditure Reports.
heavily on federal transfers under the NFC Award, while the
federation is left with shrinking scal space after these transfers About the Author: Huzaima Bukhari & Dr. Ikramul Haq, lawyers
and therefore continues to borrow. and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore
That imbalance has revived calls for a deeper restructuring of University of Management Sciences (LUMS), members Advisory Board
scal federalism. The proposed National Fiscal Pact (NFP) is and Visiting Senior Fellows of Pakistan Institute of Development
presented as an effort to rede ne responsibilities, improve Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in
coordination, and encourage provincial revenue the USA and an expert in 'White Collar Crimes and Sanctions
Compliance'. They have coauthored a book, Pakistan Tackling FATF:
mobilization.
Challenges and Solutions

ICMA’s Chartered Management Accountant, Mar-Apr 2026 76