EDITORIAL: As deliberations on the upcoming budget gather pace, Finance Minister Muhammad Aurangzeb’s recent engagement with trade bodies and the business community has thrown up a set of entrenched concerns that continue to weigh on economic activity.
Stakeholders pointed to the persistently high cost of doing business, tightening liquidity, chronic infrastructure gaps, uneven structural reforms, and perhaps most importantly, policy uncertainty, which arguably is the most corrosive drag on the economy.
While official narratives increasingly highlight the disruptive impact of a volatile geopolitical environment in complicating economic management – and such pressures are undeniably real – the deeper malaise nevertheless remains domestic in origin.
Long before recent conflicts unsettled global markets, businesses were already operating in an unpredictable policy landscape, defined by abrupt changes to tax policy, a damaging reliance on taxing presumptive incomes over actual incomes, a convoluted regulatory framework governing both domestic and foreign investment, and opaque energy pricing, among other distortions. Policymakers, then, cannot continue to cast the resultant economic instability as a by-product of external shocks alone.
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At its core lies a governance deficit stemming from short-termism, weak institutional coordination and political expedience repeatedly overriding sound economic judgment, alongside a failure to ensure policy clarity and continuity that economic confidence demands.
Tax policy aptly illustrates this uncertainty. Despite years of stated intent to broaden the tax base and lift revenues, outcomes remain weak, with rules and regulations often poorly designed, inconsistently implemented or diluted midway. Compliance with the tax regime has become prohibitively expensive: alongside sharply rising tax rates, businesses face a dense web of procedures, shifting rules and a structurally convoluted system. An overreliance on indirect taxation, a labyrinthine withholding regime and minimum taxation on turnover irrespective of profitability have together raised the cost of operating in the formal sector. Moreover, the tax base remains stubbornly narrow, with the FBR continuing to squeeze those already in the net, while under-taxed or untaxed segments remain beyond reach. These are shielded by their political leverage and successive governments’ inclination to protect entrenched constituencies, whether in retail, agriculture or real estate, with short-term revenue gains being prioritised over the more demanding task of structural reform.
The consequences of this imbalance have been far-reaching. Real estate, for example, has evolved into a preferred destination for tax-evaded and illicit wealth. Much of this investment remains speculative, with properties acquired and held idle rather than developed for housing or commercial use, yielding limited economic value. And this outcome is rooted in the historically preferential taxation of the sector, which has incentivised opacity and rent-seeking. While there have been recent efforts at course correction, they remain insufficient to dismantle the deep-seated incentives driving capital into largely unproductive real estate holdings.
Similarly, investment policy reflects the same structural weaknesses. Capital flows to environments that offer predictability in taxation, stable energy costs and clear regulatory frameworks. Pakistan’s slow-moving governance system, marked by poor coordination between federal and provincial authorities, and bureaucratic gridlock has instead deterred both domestic and foreign investment flows. The government’s solution to create the Special Investment Facilitation Council was meant to cut through this inertia, but its impact remains limited. While it has eased some procedural constraints and improved inter-agency coordination, opacity in its functioning and a narrow, project-centric focus have left deeper structural issues intact. The result is a familiar pattern: selective, project-specific gains without systemic change.
This reliance on quick fixes, rather than ensuring policy certainty, alongside a broader reluctance to confront structural governance failures, has consistently under-delivered, whether in tax reform, attracting FDI or fixing the power sector. What is needed instead is policy coherence and credibility: clearly defined rules, applied consistently, free from abrupt reversals, and backed by strong accountability of those framing and enforcing them.
Copyright Business Recorder, 2026
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