PAKISTAN is teetering on the edge of economic collapse due to its persistent struggle to increase the tax-to-GDP ratio, a crucial measure of its fiscal health.
Despite numerous efforts, many potential taxpayers remain outside the formal tax net. Recent policies have unfairly targeted existing taxpayers, driving talent and capital away and pushing the nation towards disaster. The recent passage of the Finance Act exemplifies this flawed strategy, threatening long-term economic stability.
For the past decade, Pakistan has relied heavily on taxing non-filers and compliant taxpayers to boost its revenues. Originally, the aim of collecting taxes from non-filers was twofold: generate immediate revenue and use the gathered data to bring the non-filers into the tax net. Sadly, the state failed to achieve the latter. Instead of leveraging this data, it has merely increased taxes for non-filers, using it as a short-term revenue tool rather than a long-term strategy for fiscal health.
The Finance Act exacerbates this issue, further increasing the rate of tax on non-filers and imposing tax rates as high as about 60 per cent on existing filers’ income.
This approach is flawed. Unlike Scandinavian countries, where high tax rates are balanced........