Patchwork economics

EDITORIAL: The flood of sector-specific demands placed before the Senate Standing Committee on Finance ahead of the federal budget once again reflects a deeper weakness in Pakistan’s economic policymaking: the continued search for narrowly targeted fixes to structural problems that require economy-wide solutions.

Textile exporters want the super tax abolished and withholding taxes rationalised, telecom operators seek duty reductions and tax relief, dairy producers want lower GST, exporters demand restored zero-rating and real estate representatives seek easier transaction rules. Individually, many of these requests are understandable. Collectively, they expose a fragmented policy framework struggling to define a coherent export and industrial strategy.

The temptation to offer selective incentives is not new. Pakistan’s fiscal history is filled with temporary exemptions, preferential tax treatments, subsidised rates and sector-specific packages introduced with the promise of boosting growth or exports. The difficulty is that these measures rarely remain temporary. They create distortions, encourage lobbying and eventually become vulnerable to abuse, leakage or outright reversal once fiscal pressures intensify.

The super tax itself is a good example of how quickly extraordinary measures become embedded in the system. Introduced as a temporary levy, it gradually evolved into a recurring burden that exporters now argue is eroding competitiveness. Yet removing it for one sector while maintaining broader distortions elsewhere risks repeating the same cycle of selective relief followed by future re-imposition under another name.

The larger issue is that Pakistan’s export problem cannot realistically be solved through piecemeal tax adjustments alone. Manufacturers continue to operate in an environment where electricity tariffs, gas prices, financing costs and logistical expenses remain significantly higher than many competing economies. Under such conditions, even generous fiscal concessions struggle to offset the broader cost disadvantage.

That reality becomes particularly important when viewed against the international market. Export competitiveness depends on total production costs, reliability of supply chains and policy consistency over time. A firm receiving temporary withholding tax relief still cannot compete effectively if energy shortages disrupt production or if utility costs remain prohibitively high.

There is also the question of sustainability. Many targeted incentives eventually collide with IMF conditionalities or fiscal constraints. Pakistan’s repeated reliance on ad hoc concessions has often produced a familiar outcome: incentives are introduced to stimulate exports, revenue pressures emerge, and the same measures are partially withdrawn or diluted within a few years. Businesses then face uncertainty precisely when long-term investment decisions require stability.

The problem extends beyond exporters. Almost every organised sector appearing before the committee framed its demands in terms of relief from taxation, duties or regulatory burdens. This points to a wider perception that the formal economy is carrying an increasingly disproportionate share of the state’s revenue demands while large informal segments continue operating outside the tax net.

Yet simply granting additional exemptions to the documented sector risks deepening rather than resolving that imbalance. The challenge is to reduce the overall cost of doing business across the economy instead of multiplying exceptions within an already complicated tax structure.

This is where a more durable approach becomes necessary. If Pakistan genuinely wants to expand exports, the focus must shift toward structural competitiveness rather than selective fiscal engineering. Reliable energy supply at internationally competitive rates, simplified taxation, lower transaction costs, improved logistics and predictable policy frameworks would likely deliver more lasting gains than another cycle of temporary concessions.

There is also room for genuinely innovative thinking. Export promotion cannot remain confined to the familiar debate over rebates, duties and withholding taxes. Regional trade integration, technology adoption, value-added manufacturing and productivity enhancement all require greater attention than they currently receive. Competing globally through subsidies alone is neither fiscally sustainable nor strategically sufficient.

The irony is that many sectors appearing before the committee are ultimately pointing to the same underlying problem from different angles: the cost structure of Pakistan’s formal economy has become increasingly difficult to sustain. Addressing that problem through isolated fixes risks perpetuating the very distortions policymakers claim to be solving.

The budget therefore faces a broader test than simply accommodating sectoral demands. It must decide whether economic management will continue relying on fragmented relief measures or finally move toward a coherent framework that lowers costs and improves competitiveness across the board.

Without that shift, the country risks remaining trapped in a cycle where every budget produces new concessions, new distortions and new demands for further relief the following year.

Copyright Business Recorder, 2026