From Extraction To Empowerment: Reforming Pakistan’s Fiscal Future

Pakistan’s tax system must shift from coercion to compliance—digital, fair, and rooted in trust, not fear—to reclaim fiscal sovereignty and citizen faith

Pakistan’s tax collection system is a labyrinth of inefficiencies, distortions, and discretionary abuse—engineered not for national development, but for fiscal firefighting and statistical cosmetics. We are a country where budget-making is outsourced, fiscal targets are met by coercion, and the taxpayer is seen as prey rather than a partner.

Pakistan’s last Federal Budget 2024–25 is a mirror of the nation’s fiscal fragility. It reflects a state surviving on borrowed time, where nearly PKR 13.89 trillion is borrowed to fund expenditure of PKR 24.39 trillion, and where over PKR 7.6 trillion is spent solely on debt servicing. Development receives just 6% of the federal outlay.

What is left for the people?

The Finance Bill 2024, while presented as a stabilising measure, reinforces an outdated, extractive, and coercive tax model. A review of the bill, especially through the lens of A.F. Ferguson & Co.’s authoritative analysis, exposes deep structural flaws that must be urgently addressed.

There are five fault lines in our budgetary system:

The first one is a regressive tax mix: Over 57% of the tax burden is collected through indirect taxes (sales tax, customs duties, and federal excise). This penalises the poor and middle class while the untaxed elite sectors remain protected.

Second, the expanded discretion and eroded trust – The bill enhances the FBR’s unchecked powers to withdraw exemptions, impose deemed incomes, and collect arbitrary advance taxes. This fuels a culture of fear, not compliance.

Thirdly, Legal Grey Zones – Vague terms like “late-filers,” abrupt changes to capital gains tax, and new penalty regimes invite legal disputes and hurt business confidence.

Fourthly, the institutional chaos – Overlapping authorities govern land and property taxes—CDA, DHA, cantonments—with no unified valuation system or digital land registry. Billions in revenue are lost; Finally, a punishment of the formal, and reward for the informal-Advance taxes on cars, property, phones, and utilities punish those already within the net, while amnesties and cash transactions flourish in the informal economy.

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Reforming the Fiscal Contract

This is not just about reform—it is about national revival. The solution lies not in more revenue targets, but in redefining the state’s relationship with its citizens. Pakistan must shift from a tax regime of extraction to a framework of empowerment.

Therefore, we must step towards Digital Tax Intelligence by creating a central AI-led e-taxation Hub that integrates data from NADRA, SECP, banks, utilities, and land registries. Let algorithms—not officers—detect discrepancies.

A modern solution from man to machine, from coercion to compliance: firstly, Track and Trace at Manufacturing & POS Integration at Retail. This implies that every unit of production and point of sale must be digitised using tamper-proof QR-based track and trace systems, linked to a central tax monitoring dashboard. POS devices must be mandatory for all businesses above a defined turnover threshold. Data should feed directly into a central e-taxation Hub governed by artificial intelligence, removing the human interface and discretionary power. Retailers, once digitised, must receive tax incentives and formal sector privileges. Cash transactions must be discouraged through policy, not just propaganda.

Secondly, Machine-to-Machine Communication & Minimum Human Intervention. Taxpayer data from banks, NADRA, telecoms, utilities, property, vehicle registration, SECP, and FBR must be consolidated into a single, integrated tax profile for each individual and entity. Artificial intelligence, rather than audit officers, should detect discrepancies and trigger inquiries based on deviation from declared economic profiles. This minimises corruption, ensures uniformity, and enforces compliance through logic, not intimidation.

Moreover, abolish advance and presumptive taxes and move to a post-income, slab-based system. No more coercive advance collections, withholding regimes, or deemed assessments.

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There must also be an incentivised formalisation for those who declare all fully cashless, digitally integrated entities as “Tax Compliant Exempt.” All individuals and businesses operating fully cashless should be declared “Compliant Tax Exempt Entities”, enjoying zero taxation on income, property, and professional earnings, no audit or FBR interaction, and priority access to government procurement and contracts. This will drive voluntary compliance and shrink the undocumented economy organically.

One Nation, One Tax System – For God’s sake, eliminate DC rates and market rates, and housing society exemptions. Establish a national digital land registry and a unified property tax framework.

Restructure the FBR and make it in line and compatible with the digital economy. Convert the FBR into a Federal Revenue Authority governed by professionals. Separate tax policy from administration and appoint a Taxpayer Ombudsman with enforcement powers. Separate Tax Policy from Tax Administration. FBR should not be a judge, jury, and executioner.

Global Lessons – From India’s GST-UPI synergy to China’s AI-enforced taxation and the UAE’s business-friendly VAT systems, global examples show that digital reform yields results. Pakistan must not merely catch up—it must leapfrog. Pakistan must internalise these lessons. We cannot modernise using medieval tools. We must rebuild the FBR as an autonomous, professional, AI-led Federal Revenue Authority—staffed by technocrats, not traders.

A Final Word: Fiscal Reform is Sovereignty Reform. This is more than economics. It is about restoring faith in the republic.

The current model, where state survival depends on foreign lending, coercive taxation, and regressive policies, is not sustainable. A new fiscal covenant is needed. One that treats the taxpayer as a shareholder, not a suspect. One that governs through justice, not fear.

We must remember that taxation is not theft. But taxation without respect is tyranny. If we want to survive as a sovereign nation, we must collect taxes not through fear, but through faith in the state. That faith will not come through slogans. It will come through discipline, justice, and dignity.

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Pakistan can no longer afford to be a dysfunctional republic held hostage by rent-seeking elites, predatory bureaucracy, and external lenders. We must become a digital democracy, where data, not discretion, drives decisions.

Pakistan must build a Data-Driven, Digitally Governed, Disciplined State, anchored in four principles: Simplicity, Transparency, Certainty, and Respect. Reform must be systemic, not cosmetic.

Let us pledge to build a system that is efficient, ethical, and empowering. Let us move from man to machine. From fear to faith. From chaos to clarity.