Reform needs more than panels

EDITORIAL: For a government that says it wants to overhaul the tax system, turning once again to the private sector for ideas is only a first step, not a solution. The new high-powered panel led by the finance minister is being asked to convert business community proposals into reforms, and the prime minister has tied the exercise to export-driven growth and a better business climate. All of that is useful as far as it goes. The risk is that consultation is treated as a substitute for the harder work of aligning tax policy with investment, public spending and enforcement.

The prime minister’s meeting with business leaders, soon after his return from London, was framed as part of ongoing consultations on tax reform. The panel he has set up will scrutinise private sector recommendations and, in his words, turn “comprehensive suggestions into actionable steps that will yield tangible results for the economy”. The agenda, as reported, is ambitious. It includes developing a pragmatic action plan, focusing on export-driven growth, improving the business ecosystem and making the environment more competitive regionally and globally. The removal of the Export Development Surcharge, welcomed by exporters, has been presented as an early signal of intent.

There is nothing wrong with drawing heavily on private sector input. Those who pay taxes and invest capital understand the distortions and disincentives in the present system as well as anyone. The statement from the Prime Minister’s Office highlights that the working group includes key figures from the business community and that the discussions covered sectoral tax rates, regional comparisons and ways to spur exports and investment. That is precisely the kind of structured interaction that has often been missing from policymaking. The problem is that Pakistan’s experience also shows that such exercises do not automatically lead to the kind of deep reform that is being promised.

A meaningful tax overhaul ultimately depends on the state’s own capacity and choices. Private stakeholders can highlight what is wrong with rate structures and procedures, they can identify where the burden is excessive or where it discourages formal activity, but only government can decide how to confront powerful interests, redesign incentives and accept short-term political costs. It is notable that the present conversation is still framed mainly around facilitation, competitiveness, and the removal of specific levies. These are important objectives, yet they leave unanswered the question of how a chronically narrow tax base will be rebuilt and how the quality of public spending will be improved to justify the burden that remains.

That is where the link with investment becomes central. A tax system that is meant to support export-driven growth cannot be designed in isolation from a strategy for attracting long-term capital. The meeting in Islamabad revolved around domestic private sector proposals and regional comparisons of tax rates. There was little, at least in the public account, to suggest that foreign direct investment is being treated as an integral pillar of the reform effort rather than a separate track. If the objective is a stronger, more competitive business sector, the tax regime will have to be credible to investors, who are weighing opportunities across several jurisdictions, not just existing players, who are already here.

The same applies to the Public Sector Development Programme (PSDP). The prime minister was right to stress that stronger economic activity will naturally enhance tax compliance and contributions, but that link only holds if taxpayers believe that their money is being used productively. A serious conversation about tax reform cannot ignore how development allocations are programmed, monitored and protected from waste. Business leaders can offer proposals to spur growth and exports. Only the state can ensure that the proceeds are not dissipated through leakages that undermine both service delivery and public trust.

The government’s decision to convene a high-powered committee with private sector representation is therefore best seen as a starting point. It may generate useful recommendations, and it signals an awareness that the current tax system is a drag on growth. Yet the real test lies beyond committee rooms. It lies in whether those recommendations are integrated into a broader framework that links tax policy with investment, both domestic and foreign, and with a credible improvement in the way public funds are spent. Without that, the latest initiative risks joining a long list of well-advertised attempts that adjusted individual taxes but did not change the direction of the system as a whole.

For now, the prime minister’s assurances and the finance minister’s mandate give the process political cover. The business community has been invited to help shape the agenda and has responded with detailed proposals. The next steps will determine whether this engagement leads to a genuine reordering of priorities or remains another round of consultation that leaves the underlying structure intact.

Copyright Business Recorder, 2025