Many writers, institutes, and think tanks, such as the Pakistan Institute of Development Economics (PIDE) and PRIME Institute, have been highlighting the vices of oppressive and narrow-based taxation in various reports, articles, research papers, and books. Viable solutions have also been offered to make the tax system fair and broad-based, but the Ministry of Finance, the Federal Board of Revenue (FBR), and foreign lenders and donors have never paid any heed.

These solutions include: the corporate tax rate should not exceed 20%, including super tax, etc., and the income tax rate for individuals should be lowered to a maximum of 10%, with an alternate tax of 2.5% on net wealth exceeding Rs 100 million, whichever is higher. All adult individuals should be facilitated to file a simple income tax return (no wealth statement). Those earning below the taxable limit should be paid income support (negative tax). A single-page return form for individuals should be available in English, Urdu, and all regional languages, which can even be submitted through a simple mobile application.

Reporting of real income by all will help create a national-level databank of all households. Their earning levels will determine who needs to pay and who should be entitled to social benefits, and how to improve social and economic mobility, ending the poverty trap. The State must end the culture of appeasement by withdrawing all exemptions and concessions to retrieve the monstrous tax expenditure of trillions of rupees. In the future, there should be no immunity and amnesties. The State must not extend any further amnesties or immunities, which give incentives to the dishonest and penalise the honest.

Those who filed but underpaid should be offered an opportunity to make up the deficiency by paying the due tax with no penal action or audit. This will yield much more than the target ordinarily fixed for the FBR in the current fiscal year at Rs 14.131 trillion. To reduce the fiscal deficit to the level of 4% of GDP, it is imperative to: (i) curtail unproductive and wasteful expenditure by 50%; (ii) increase non-tax revenues by leasing out valuable state lands and assets, such as palatial government houses, through public auction and for specific activities to generate employment and boost economic activity; and (iii) ensure that taxes at all levels—federal, provincial, and local—are simple, low-rate, broad-based, and payable with ease.

Pakistan’s Fiscal Crisis: Debt, Tax Failures, And The Urgent Need For 2026 Reforms

The State, instead of overburdening taxpayers with advance and heavy taxes, duties, and other charges, should facilitate them by improving the ease of doing business and reducing the cost of doing business. Tax credits and incentives should be provided for investment in human resource development (HRD) and research and development (R&D) to produce a qualified workforce in all areas, providing employment to all and paying them as ordained in Article 3 of the Constitution.

A minimum of 4% of GDP should be allocated for........

© The Friday Times