CORPORATE WINDOW: Pakistan’s fiscal policy odyssey

As Pakistan faces mounting economic challenges, the government’s ambitious proposal to raise Rs1.2 trillion to Rs1.3tr in the upcoming budget through new taxation measures signals a bold attempt to stabilise the nation’s fiscal health. However, the effectiveness of these measures is tempered by the inherent weaknesses in Pakistan’s tax system, which is fragmented and unfair and leaves entire sectors of the economy under-taxed, exacerbating structural economic imbalances. The government seems to be adhering once again to the easier route of imposing more taxes on imports and withholding taxes, along with some good proposals, such as the rationalisation of tax rates. The tax system is heavily skewed towards import and consumption taxes, with around 50 per cent of tax revenue coming from indirect taxes, while direct taxes constitute only about 33pc, primarily from advance and withholding taxes.