Massive taxes and the NFC conundrum

Pakistan has a fiscal problem, and the problem cannot be fixed by increasing tax rates. We have reached the point of the cycle where increasing tax rates is counter-intuitive, catalyses an informal economy, and discourages the formation of capital and economic activity within the formal realm. Pakistan has one of the highest corporate tax rates in the world while also having one of the highest effective tax rates for individuals, ie those individuals who are unlucky enough to get the same deducted at source given the lopsided and distorted tax brackets. To understand how there has been an exodus of private businesses from the formal financial sector, the ratio of government deposits to private business deposits has been consistently increasing and is currently at 75 per cent in 2025, relative to 44pc in 2010. This effectively means that the relative size of government compared to private sector businesses (as measured by deposits) has been consistently increasing as private sector businesses increasingly prefer to work informally rather than as part of the formal financial system.