EDITORIAL: Balancing the budget is becoming increasingly difficult. Despite imposing exorbitant taxes on the formal sector, the FBR (Federal Board of Revenue) is missing its revenue target by a wide margin, while next year’s targets are becoming even more ambitious. Against this backdrop, any hope that the government would rationalize tax rates for the already overtaxed business and salaried individuals is rapidly fading.
Compounding the problem, the government has failed to achieve the target of 4 percent GDP growth this year, and the chances of reaching that mark next year appear slim as well. The mantra remains unchanged: stabilization is the priority.
This will be the fifth consecutive budget under the current Prime Minister and the third under the current finance minister, yet the economy is still struggling to achieve meaningful stability.
The patience of people, particularly those forming the formal sector and the salaried class, is wearing thin. However, signs of stabilization fatigue are beginning to emerge.
We are reaching a stage where many of the previous administrations have succumbed to abandoning the IMF (International Monetary Fund) programme to embark upon spurring growth in the economy with disastrous consequences.
It is, therefore, essential that we bite the bullet as time is running out. The government can no longer afford to sidestep the issue. It must deliver, and that delivery must come in the form of broadening the tax base. Nothing short of that will suffice.
The government needs additional fiscal revenue, while the overtaxed sectors desperately need relief. Both objectives cannot be achieved unless those who remain untaxed or under-taxed are brought into the tax net.
Whenever this issue is raised with the federal government, officials often attempt to absolve themselves of responsibility by arguing that many of these areas fall under provincial jurisdictions and that their hands are tied.
This is a lazy argument; take agriculture, for example. More than half of the sector consists of livestock, which the FBR itself acknowledges falls within its tax domain. Yet, virtually no progress has been made. Eid-ul-Azha has just passed, during which tens of billions of rupees worth of livestock changed hands across the country. Yet there is no meaningful tax collection on these transactions or on the income earned by sellers. Except for two days in a week, thousands of animals are sold for slaughter in abattoirs without attracting any tax.
Every year there is an attempt to woo traders and retailers into the tax net through announcements of simplified tax schemes. More than a dozen such attempts have been made but without success as the traders and retailers refuse to budge and continue to contribute little in taxes. The proposed fixed tax of Rs25,000 per month for retailers in the upcoming budget is nothing short of a joke.
Where the FBR cannot directly assess income in certain sectors, it often resorts to taxing deemed income. In other words, taxes are collected on revenues rather than actual profits, and in some cases the effective burden does rise as high as 15 percent of turnover.
What began as a presumptive tax regime eventually evolved into a minimum tax system, payable regardless of whether an enterprise is profitable. It is an inherently unfair mechanism that discourages investment in affected sectors. The result is weaker economic activity and another obstacle to achieving sustained growth.
The government needs to think outside the box and provide meaningful relief to the formal sector through lower tax rates. It should present a clear three- to five-year roadmap for reducing tax rates income of businesses whether corporate or non-corporate and salaried persons and immediately begin phasing down, if not eliminating altogether, the super tax and various surcharges.
The resulting revenue gap must be filled by bringing into the tax net those who currently do not pay their fair share. More of the same cannot continue as the country cannot live indefinitely on stabilization policies. Stability without growth is an illusion. There can be no lasting economic stability without creating jobs for the large and growing number of new entrants to the labour market.
Copyright Business Recorder, 2026
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