23RD MARCH PAKISTAN RESOLUTION DAY: 86th Pakistan Day: Need for fiscal reconstruction

March 23, 2026 marks 86th Pakistan Day. The entire nation hopes that the present hybrid-plus government will strive to forge a broad political consensus for undertaking the much-needed reforms in all spheres of governance and fix decades-old chronic socio-economic maladies.

On March 23, 1940, All India Muslim League in its annual session at Lahore [22-24 March 1940] passed Lahore Resolution that ultimately paved the way for a separate homeland [Pakistan] for the Muslims of British India after a long-drawn struggle against colonial rule. This memorable day and adoption of Pakistan’s first constitution is celebrated as ‘Pakistan Day’ every year.

The Lahore Resolution articulated a political vision rooted in autonomy and self-determination. Translating that vision into economic reality remains an unfinished task. Pakistan’s fiscal architecture today reflects structural weaknesses that undermine both growth and equity.

The most critical issue is the gap between revenue potential and actual collection. Pakistan’s economy generates substantial value, yet tax collection remains persistently low relative to GDP. This gap is not merely administrative; it reflects policy choices that have narrowed the effective tax base.

A large informal sector operates outside the documented economy, limiting the reach of the tax system. Simultaneously, exemptions and preferential treatments reduce the taxable capacity of documented sectors. The result is a narrow base subjected to high rates, creating both inefficiency and inequity.

Indirect taxation dominates the revenue structure. While administratively convenient, it imposes a regressive burden on consumers and suppresses demand. A gradual shift toward direct taxation is essential for achieving a more balanced and sustainable system.

Corporate taxation presents additional complexities. Large trans-provincial entities generate income across multiple jurisdictions, yet the allocation of tax revenues does not adequately reflect this reality.

Existing arrangements under fiscal federalism require re-evaluation to ensure both fairness and efficiency.

Estimates suggest that significant additional revenues can be mobilised without increasing tax rates. Documentation of economic activity, integration of data systems, and reduction of exemptions can substantially enhance collection. The challenge lies in overcoming resistance from vested interests.

Expenditure management is equally critical. A large proportion of public spending is absorbed by debt servicing and administrative costs, leaving limited resources for development. Rationalisation of expenditures, including reduction of non-essential spending, is necessary to create fiscal space.

State assets represent another underutilised resource. Monetisation of idle or inefficiently used assets can generate revenue and improve economic efficiency. Long-term leasing and public-private partnerships offer viable mechanisms for unlocking this potential.

Institutional reform is indispensable for sustainable progress. The existing tax administration is often perceived as complex and coercive. Simplification of procedures, enhancement of transparency, and improvement in taxpayer services can increase compliance and reduce evasion.

The concept of a unified national tax authority merits serious consideration. Fragmentation across federal and provincial jurisdictions creates inefficiencies and overlaps. A coordinated approach can enhance both revenue mobilisation and policy coherence.

Fiscal discipline must also be strengthened. Persistent deficits and reliance on borrowing have created a cycle of dependency. Breaking this cycle requires aligning expenditure with revenue and prioritising long-term sustainability over short-term adjustments.

The Pakistan Day provides an opportunity to revisit the economic foundations of the state. The political aspirations of 1940 cannot be realised without a robust and equitable fiscal system. Economic independence is inseparable from fiscal stability.

Reform is not a matter of technical design alone; it is fundamentally political. It requires consensus across stakeholders and commitment to long-term objectives. Incremental adjustments are insufficient; structural transformation is necessary.

The path forward lies in broadening the tax base, rationalising expenditures, and strengthening institutions. Fiscal policy must be aligned with constitutional principles and developmental goals. Only then can the promise of the Lahore Resolution be translated into tangible economic outcomes.

Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.

Copyright Business Recorder, 2026