Many writers, institutes, and think tanks, such as the Pakistan Institute of Development Economics (PIDE) and PRIME Institute, have been highlighting the vices of oppressive and narrow-based taxation in various reports, articles, research papers, and books. Viable solutions have also been offered to make the tax system fair and broad-based, but the Ministry of Finance, the Federal Board of Revenue (FBR), and foreign lenders and donors have never paid any heed.
These solutions include: the corporate tax rate should not exceed 20%, including super tax, etc., and the income tax rate for individuals should be lowered to a maximum of 10%, with an alternate tax of 2.5% on net wealth exceeding Rs 100 million, whichever is higher. All adult individuals should be facilitated to file a simple income tax return (no wealth statement). Those earning below the taxable limit should be paid income support (negative tax). A single-page return form for individuals should be available in English, Urdu, and all regional languages, which can even be submitted through a simple mobile application.
Reporting of real income by all will help create a national-level databank of all households. Their earning levels will determine who needs to pay and who should be entitled to social benefits, and how to improve social and economic mobility, ending the poverty trap. The State must end the culture of appeasement by withdrawing all exemptions and concessions to retrieve the monstrous tax expenditure of trillions of rupees. In the future, there should be no immunity and amnesties. The State must not extend any further amnesties or immunities, which give incentives to the dishonest and penalise the honest.
Those who filed but underpaid should be offered an opportunity to make up the deficiency by paying the due tax with no penal action or audit. This will yield much more than the target ordinarily fixed for the FBR in the current fiscal year at Rs 14.131 trillion. To reduce the fiscal deficit to the level of 4% of GDP, it is imperative to: (i) curtail unproductive and wasteful expenditure by 50%; (ii) increase non-tax revenues by leasing out valuable state lands and assets, such as palatial government houses, through public auction and for specific activities to generate employment and boost economic activity; and (iii) ensure that taxes at all levels—federal, provincial, and local—are simple, low-rate, broad-based, and payable with ease.
The State, instead of overburdening taxpayers with advance and heavy taxes, duties, and other charges, should facilitate them by improving the ease of doing business and reducing the cost of doing business. Tax credits and incentives should be provided for investment in human resource development (HRD) and research and development (R&D) to produce a qualified workforce in all areas, providing employment to all and paying them as ordained in Article 3 of the Constitution.
A minimum of 4% of GDP should be allocated for education and an additional 2% for R&D by federal and provincial governments
All possible facilities and incentives should be provided to entrepreneurs and innovators, especially small and medium enterprises (SMEs), to enable them to focus on innovation, growth, and productivity. The banking sector must be proactive in lending to SMEs and large businesses. At present, banks overwhelmingly extend loans to the government, considering it a safe bet. Banking laws need to be amended for the quick disposal of disputes, as is done in many countries. Facilities should be extended to foreign investors, including the grant of long-term visas and/or nationality. Many Afghans and Iranians are keen to invest.
Centralised data creation and management of all citizens is necessary to determine their economic status. There should be universal pensions, social security, and food stamps for the needy, while simultaneously empowering them to unshackle themselves from the poverty trap. The establishment of a National Tax Agency (NTA) and All Pakistan Unified Tax Services (APUTS), staffed with professional expertise in all related fields, is essential. The NTA would communicate to all citizens what their income and expenditure levels are; it would determine correct tax obligations and bona fide entitlement to social support from the State.
National and provincial legislators should impose simple, predictable, and low-rate taxes. Income tax on all incomes, including agricultural income, should be under the exclusive domain of the federal government. A unified sales tax on goods and services, to be collected by the NTA, should be shared between the Centre and provinces. This would ensure fiscal consolidation and make the country self-reliant. Multiple taxes must be abolished, and instead, local taxes such as property and vehicle taxes should be collected to meet local needs. Funds should be allocated to local governments to provide health, education, civic amenities, and recreational services.
A minimum of 4% of GDP should be allocated for education and an additional 2% for R&D by federal and provincial governments. All citizens and other entities should be given a chance to declare all untaxed assets, for any past year, whether held domestically or abroad, by paying the full due tax liability, either in a lump sum or in instalments, to overcome liquidity constraints—of course, paying additional tax for grace periods. After the deadline, stringent action under the law should be taken, including confiscation of property, fines, and/or imprisonment.
The above measures need immediate consideration if Pakistan is to achieve rapid and inclusive development, ensuring prosperity for all citizens, wherever they may reside. Shockingly, both the IMF and the FBR have ignored proposals outlined in Tax Reforms: Agenda for Self-Sustainability, which demonstrates the potential to collect Rs 30 trillion at the federal level alone, enabling Pakistan to overcome its monstrous fiscal deficit, eliminate dependence on fresh loans, achieve rapid economic growth, and provide social services to all citizens. Failure to undertake fundamental structural reforms, as suggested above, is the real problem.
There has been much talk of a “charter of economy” in Pakistan, but none of the political parties or stakeholders have ever seriously considered the true spirit of the 18th Amendment, even after more than fifteen years
The federation can easily collect Rs 30 trillion in taxes (15% of GDP if the informal economy is also included), creating adequate fiscal space to escape the present economic mess and deliver long-delayed benefits and entitlements to citizens, as well as relief to trade and industry. To achieve this level of tax collection, the focus must be on rapid and sustainable growth that increases tax revenues as a by-product. Harsh taxation only hampers expansion and discourages investment in existing and new businesses.
The way forward lies in the determination of fair taxation rights under the Constitution between the federation and federating units. This requires urgent reconsideration, as highlighted in Pakistan’s Fiscal Crisis: NFC, Federal Overreach and the Betrayal of Devolution (The Friday Times, 20 December 2025). The need of the hour is to allow provinces to raise adequate resources, which would also help address the overall fiscal deficit faced by the federal government.
For example, Balochistan should receive the “net proceeds” of excise duty on natural gas, and Khyber Pakhtunkhwa on electricity, as envisaged in Article 161(1)(a) and (b) of the Constitution—something that is presently not being implemented. Their current shares in sales tax under the 7th NFC Award are as low as 9% and 15%, respectively. Despite their rich natural resources—oil, gas, and electricity—their low population results in meagre shares of the revenues generated from the goods they produce. Sindh faces similar issues.
In view of Article 167(4), the role of the National Economic Council (NEC) has become critically important, yet this has not been realised by either the Centre or the provinces. Planning in the aftermath of the 18th Amendment should have been federalised rather than centralised. The 18th Amendment redefined the NEC on the pattern of the Council of Common Interests (CCI). The NEC forms part of Chapter 3 of the Constitution, titled “Special Provisions”.
After the 18th Amendment, the right to levy wealth tax, capital gains tax on immovable property, gift tax, inheritance tax, etc., rests with the provinces. However, they are unwilling to impose these taxes on the rich and powerful. This lack of political will exists at both the federal and provincial levels. The paltry collection of agricultural income tax—less than Rs 3 billion by all provinces and the Centre combined in fiscal year 2024–25—is highly lamentable.
The way forward to achieve and sustain fiscal consolidation and ensure ease of business is a unified sales tax on goods and services, as practised in many federations, under a low rate (say 10%). This unified sales tax should be collected by a federalised National Tax Authority with representation from both the federation and the federating units.
It is also imperative that further constitutional amendments be made, following debate and consensus, to assign the right to levy tax on all kinds of income—including agricultural income—to the federal government. The provincial share of agricultural income tax should be 100%, as the NTA would be a federalised agency, with its expenditure met from revenues collected on a pro-rata basis.
These measures alone can reduce the fiscal deficit at the national level and are the only viable path to achieving and sustaining fiscal stabilisation in Pakistan. However, this can only be realised if all tax collection agencies at federal and provincial levels are reformed and ultimately merged into a single National Tax Authority, staffed by officers of the All Pakistan Unified Tax Service (APUTS).
The NTA would collect taxes at all levels and distribute them according to constitutional provisions. It would also disburse benefits such as pensions, social security, food stamps, and income support. Linking databases of various institutions with the NTA through complete digitisation would be a major step towards e-government, which is currently almost non-existent, though initial efforts are now underway.
The structure and functioning of the NTA should be discussed and finalised under the Council of Common Interests, with oversight placed under the National Economic Council. It is high time that the federal and provincial governments—including representatives of Azad Jammu and Kashmir and Gilgit-Baltistan—sit together under the umbrella of the Ministry of Inter-Provincial Coordination. They must deliberate on the federalisation of economic planning, as mandated by the Constitution, pool available resources under APUTS, and achieve fiscal consolidation to make Pakistan a prosperous country with inclusive development and an attractive destination for domestic and foreign investment.
This should be the nation’s resolve for 2026, which may be declared “2026: Year of the Road to Prosperity”. Clearly, incumbent federal and provincial governments and vested interests will not implement these reforms unless civil society and the media launch an effective campaign. There has been much talk of a “charter of economy” in Pakistan, but none of the political parties or stakeholders have ever seriously considered the true spirit of the 18th Amendment, even after more than fifteen years.