Experts at a pre-budget policy dialogue organized by the Sustainable Development Policy Institute (SDPI) warned that Pakistan could see up to 1.5 million more people fall below the poverty line if urgent fiscal reforms are not implemented in the upcoming federal budget.
The dialogue, titled “Towards a Fair, Equitable, Broad-based Tax System”, painted a sobering picture of the country’s economic outlook. GDP growth for the current fiscal year is expected to remain between 3.3 and 3.7 percent, exports have dropped by nearly $2 billion in the first nine months, and the current account deficit is projected to widen to 2.8 percent of GDP. Experts also highlighted that energy price shocks could push the oil import bill up by $6 billion, while inflation is likely to rise to 11–13 percent.
SDPI Executive Director Abid Qaiyum Suleri said Pakistan’s fiscal framework requires a decisive shift toward progressive taxation to reduce reliance on indirect levies that disproportionately affect lower-income households. He called for widening the tax base, rationalizing exemptions, and integrating climate resilience and disaster preparedness into fiscal planning, emphasizing that anticipatory investment reduces recovery costs from natural disasters.
SDPI Deputy Executive Director Dr. Sajid Amin Javed noted that indirect taxes currently account for nearly 60 percent of total revenue, while withholding taxes make up around 55 percent of direct tax collection. He pointed out that income tax contributions from the salaried class have risen over 418 percent since 2019, underscoring the need for structural reforms to improve fairness and efficiency.
Asif Rasool of the Federal Board of Revenue stressed that strengthening the documentation of the economy and improving coordination between federal and provincial authorities are essential to expand the tax net, enhance transparency, and reduce dependence on indirect taxation through enforcement and digitalization measures.
SDPI Energy economist Khalid Waleed highlighted vulnerabilities in electricity generation, with about 13 percent of projected 2026 output relying on RLNG, and urged incentives for rooftop solar, battery storage, and electric vehicle charging networks. He suggested replacing untargeted petroleum subsidies with direct solar support for protected consumers to reduce reliance on imports and ease fiscal pressure.
Speakers also emphasized the importance of supporting small and medium enterprises, which are critical for employment and export growth but face challenges from high borrowing costs, rising energy prices, and regulatory burdens. Targeted incentives and simplified procedures, they said, could improve SME participation in the formal economy.
The dialogue underscored widening income inequality, with the top 10 percent of the population controlling 55–60 percent of total income and around 45 percent of national wealth, while the top one percent holds more wealth than the bottom 50 percent combined. Experts concluded that the federal budget should focus on expanding the tax base, rationalizing exemptions, strengthening property and wealth taxes, supporting SMEs and exporters, and embedding climate resilience to ensure sustainable and inclusive economic growth.
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