As Pakistan prepares its federal budget for 2026–27, leading business stakeholders have urged policymakers to abandon short-term revenue-driven strategies in favour of structural reforms that can support sustainable economic growth.
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They argue that excessive reliance on taxing the existing formal sector is undermining investment, eroding competitiveness, and accelerating deindustrialisation at a time when economic stability remains fragile.
Revenue pressure vs growth sustainability
The Pakistan Business Forum (PBF) has cautioned that the current tax framework prioritises immediate revenue collection over long-term expansion of the tax base. It noted that repeated increases in taxes on compliant sectors have reduced profitability and discouraged reinvestment, ultimately limiting future tax potential.
Officials within the business community believe that unrealistic tax targets assigned to authorities have forced aggressive extraction from documented businesses. They stressed that without expanding the number of taxpayers, continued reliance on existing contributors will weaken economic activity and reduce overall fiscal resilience.
Call for structural tax reforms
The forum has recommended a shift toward a principles-based tax system that is simple, predictable, and conducive to investment and formalisation. It emphasised that growth in tax revenues should stem from higher profitability and broader participation rather than increased rates on the same base.
Among key proposals is the separation of tax policy formulation from tax collection, aimed at improving governance and ensuring more balanced economic decision-making. Such a move would involve multiple ministries to align taxation with industrial, trade, and investment priorities.
Industry under strain
Business leaders highlighted that high energy costs, currency depreciation, and elevated taxation have collectively forced many manufacturing units to scale down or shut operations. This trend, they warned, is contributing to rising unemployment and weakening Pakistan’s export base.
They also pointed out that the economy risks becoming overly dependent on trading and imports rather than domestic value addition. Reversing this trajectory would require targeted incentives for manufacturing, agriculture, and services sectors.
Broadening the tax base
The PBF stressed that meaningful reform must prioritise bringing untaxed segments into the formal economy. It suggested utilising existing financial data and enforcement mechanisms to identify non-compliant individuals and businesses.
In parallel, it proposed reducing the burden on compliant taxpayers to encourage documentation and voluntary compliance. Experts argue that such measures would create a more equitable system while improving long-term revenue sustainability.
Budget expectations
With the government under pressure to meet fiscal targets, the upcoming budget is expected to balance revenue generation with economic revival. However, business leaders insist that without a decisive shift in approach, Pakistan risks prolonging a cycle of low growth and high taxation.
They emphasised that a growth-oriented fiscal strategy is essential to unlock investment, boost exports, and stabilise the economy over the medium term.