Missed targets

The buzzword of 2024 on the economic front was taxes. Ever since the then newly elected government announced the budget, there were clear warnings that the authorities would go all-out to increase tax revenue, launching a crackdown against those who evade taxes with impunity. It set an ambitious tax revenue goal of Rs13 trillion for FY2025, marking a nearly 40 per cent increase from FY24. But these aspirations have not led to desirable outcomes. According to the FBR, it collected Rs5.62 trillion in the first half of FY2025 (July-December), falling short of its Rs6.01 trillion target by Rs386 billion. This raises concerns for the finance team as the country’s failure to meet the IMF-mandated fiscal targets may reflect badly during the review meeting scheduled in February. We are still unsure if this shortfall will end up convincing the authorities to raise taxes even more or revise its targets. It seems in our case, only governments change – but economic challenges remain the same. This time, the government said that it would expand the tax net, but conveniently missed big agriculturalists who enjoy hefty yields but do not have to bear the burden of taxes. Under the constitution, the federal government cannot tax agricultural income. Provinces collect taxes from the agriculture sector, contributing 24 per cent to the economy but only 0.1 per cent of total taxes nationwide. The IMF has suggested provinces adopt non-salaried business individuals’ income tax rates (up to 45 per cent of net income) on agricultural income, but so far only the Punjab government has introduced measures to tax agricultural income; it will now be using super tax rates of the FBR to impose taxes on high earners in the agricultural sector. Then we have an informal, undocumented economy where businesses continue to charge extraordinarily high prices and hide their revenue to pay taxes at a lower price.

Leniency by authorities and the associated political costs that come with tough action against tax evaders have brought us to a point where our efforts are not leading us towards our targets. The country could significantly boost revenue if it turns its gaze towards the documentation of its economy. This is no simple task, and there will be resistance. But in an era where technology holds the power to connect, document and verify, this step can prove to be quite beneficial. With the use of digital tools, the government can tap into the world of informal businesses, ensuring that no transaction escapes the authorities’ watchful eyes. Those in charge of governance also need to consider the factors behind our dismal state. According to data released a few days back, the country has recorded an economic growth rate of 0.92 per cent in the first quarter of FY25, a sharp decline from 2.3 per cent recorded last year. This modest growth is driven by the agriculture and services sector. Financial instability, high production costs and never-ending political unrest have hit the industrial sector hardest. Many companies are shifting abroad to find some stability. In a world where world economies are opening up, and introducing business-friendly policies, Pakistan is narrowing options for its already struggling business class.

We have people who rationalise tax evasion or undervoicing because they argue that the government has failed to provide reliable public services to them. From housing, education and healthcare to public utilities like gas, electricity and water, everything is available at exorbitant costs, mainly set by private players. This gives people an incentive to evade tax or move away from economic activities that may require them to give a share of their income to the government. Resistance to taxes is not an alien concept, and Pakistan is not the only country that faces opposition to tax measures. But what is unique in our case is the lack of public good. Government representatives have left the entire nation on its own, forcing them to fend for themselves. Our fiscal targets cannot be met unless we have a people that put trust in their country’s system. Political and economic reforms must run side by side if we are serious about turning our economy around.