Empirical evidence from developing countries is clear: raising tax rates drives taxpayers out and reduces government revenue.
Argentina raised its personal income tax (PIT) rate from 35 per cent in 2014 to 45 per cent in 2017 and imposed a wealth tax in 2018. The result was swift: high-net-worth migration surged 200 per cent between 2020 and 2023, while capital flight reached $84 billion in 2019. Despite higher tax rates, total revenue declined — from 21.5 per cent of GDP in 2017 to 18.2 per cent in 2022 — and personal income tax receipts fell 15 per cent in real terms.
Venezuela gradually raised its personal income tax to 35 per cent by 2015, increased VAT from 12 per cent to 15 per cent, and introduced wealth surcharges. The outcome was catastrophic: between 2014 and 2024, seven million people fled the country, including half a million professionals and business owners. Capital outflows reached an estimated $200 billion.
Sri Lanka, just 2,750 kilometres from Pakistan, offers a stark warning. In pursuit of higher revenue, Colombo raised VAT to 18 per cent in 2016, lifted personal income tax to 36 percent in 2022, and sharply increased property taxes. The result was economic flight, not fiscal gain: between 2020 and 2024, 300,000 skilled workers emigrated, and $5 billion in capital fled after the 2022 hikes.
By 2023, government revenue had collapsed — from 14 per cent of GDP in 2019 to just 9.0 per cent — and tax collections had shrunk 30 percent in real terms. Pakistan should take note: overtaxing a shrinking base drives capital, talent and trust out of the system.
Nigeria offers another warning Pakistan cannot ignore. In 2020, Abuja raised corporate income tax from 30 to 35 percent and VAT from 5.0 per cent to 7.5 per cent. The result: over one million young professionals left between 2015 and 2024, while illicit capital outflows ballooned to $20 billion a year. Despite higher rates, tax revenue remained stuck at 6-7 per cent of GDP for nearly a decade, then slipped to 5.8 per cent in 2021. Collections underperformed by 20 per cent. The lesson is clear — when taxation exceeds trust, both talent and capital take flight.
South Africa is another warning sign for Pakistan. In pursuit of higher revenue, Pretoria raised personal income tax to 45 per cent in 2017, increased VAT from 14 per cent to 15 per cent in 2018, and imposed a wealth tax. The result was predictable: a decade of “white flight” and skilled emigration exceeding one million people between 2014 and 2024, accompanied by $50 billion in capital outflows.
Brazil tells a similar story. The top personal income tax reached 27.5 per cent in 2015, a wealth tax was added, and dividends — once untaxed — were hit with a 15 per cent levy in 2021. Between 2016 and 2024, some 400,000 Brazilians emigrated, while capital flight rose to $30 billion a year after the new taxes. Despite the higher rates, tax revenue fell from 33 per cent of GDP to 31 per cent by 2023, and personal income tax yield dropped 8 percent as the base eroded.
The evidence from Argentina to Sri Lanka is not academic — it is a mirror. Every percentage point added to an already burdened tax system has not filled government coffers; it has emptied streets, offices, and bank accounts. The math is merciless: when the tax base flees, revenue follows.
Pakistan should take heed: punitive taxation drives away both capital and competence. Red alert: Lower the rates. Restore trust. Or watch the exodus accelerate — first the wealthy, then the skilled, finally the hopeful.
The write is an Islamabad-based columnist.
