Pakistan’s tax debate is usually framed as a technical puzzle: how to raise more revenue, faster, under pressure.
That framing misses the real story. The country does not suffer from a shortage of tax instruments; it suffers from a shortage of political imagination. The result is a fiscal strategy that taxes what is visible, movable only with difficulty and politically weak, while allowing concentrated wealth to remain largely untouched. This is not merely bad economics. It is a pattern that links Pakistan to a wider global failure.
The evidence is no longer anecdotal. The World Inequality Report 2026 demonstrates that across advanced and emerging economies alike, tax systems are progressive only up to a point. Effective tax rates rise for workers and the middle class, then fall sharply at the very top. Billionaires routinely pay lower effective rates than salaried professionals. The curve bends precisely where it should steepen. Pakistan’s experience is an extreme version of this global trend, not an exception to it.
Seen through this lens, Pakistan’s recent tax choices look less like necessity and more like habit. Consider the mobile phone. More than half its retail price now consists of taxes and duties. This is defended as pragmatism: phones are easy to tax, imports are traceable and compliance is automatic. Yet phones are no longer discretionary goods. They are tools of work, gateways to finance and platforms for education. Taxing them heavily is tantamount to taxing participation in the modern economy. It raises revenue today while quietly shrinking tomorrow’s tax base.
Energy policy follows the same logic. Power subsidies have been cut sharply, and new levies have been imposed to retire legacy debt in the gas sector. These measures are presented as fiscal housekeeping, cleaning up the mess of the past. But the mess did not arise from consumer excess. It emerged from years of distorted pricing, weak regulation and rent extraction. Passing the bill to households and firms may balance accounts, but it preserves the political economy that created the problem. Losses are socialised; privilege remains private.
These choices would be easier to defend if they worked. They do not. Despite higher rates and new levies, revenue targets continue to slip. Warnings of large shortfalls have become routine. This is the defining paradox of Pakistan’s tax system: the more aggressively it taxes the compliant economy, the less reliable its revenues become. When repeated rate increases fail, the problem is no longer enforcement but structure.
That structure is shaped by power. Tax systems do not evolve in a vacuum; they reflect political bargains. In Pakistan, exemptions proliferate, preferential treatments endure, and amnesties recur with suspicious regularity. Assets that are easy to conceal – land, property and capital gains – remain lightly taxed. Incomes that are easy to trace – like salaries, utilities, and consumer goods – carry the burden. This is elite capture by design, not accident.
What makes this moment particularly stark is that richer countries are grappling with the same dilemma, albeit with greater room to manoeuvre. Britain, facing slower growth and high debt, has chosen to raise taxes substantially while shifting the burden toward higher earners, property and savings. The politics are bruising, but the principle is explicit: fiscal stability requires asking those with greater capacity to contribute more. The debate is not about whether to tax, but whom.
At the same time, trade tensions between the United States and its allies over digital taxes reveal how contentious the taxation of large, mobile capital has become. Digital services taxes fall overwhelmingly on powerful multinational firms. They provoke resistance precisely because they challenge concentrated economic power. For smaller countries like Pakistan, this global resistance makes the task harder, but not optional. Retreating into regressive taxation is not neutrality but surrender.
The inequality data underlines why this matters. The World Inequality Report shows that extreme wealth concentration is no longer a side-effect of growth; it is one of its dominant features. When the ultra-rich contribute proportionately less to public finances, states compensate by taxing consumption and labour. This deepens inequality, weakens growth and erodes trust. Over time, it also undermines the state's capacity to tax at all.
Pakistan is already caught in this loop. Heavy taxation of connectivity and energy raises costs for households and firms, compresses demand and hurts competitiveness. The middle class feels squeezed and politically invisible. Informality becomes rational. Compliance turns grudging. Each cycle leaves the tax base narrower and the next adjustment more painful.
The usual defence is that Pakistan has no choice. External financing is tight. Programmes impose conditions. Powerful interests cannot be confronted overnight. All true, and yet insufficient. The choice is not between fiscal collapse and taxing wealth tomorrow. It is between signalling a credible direction of reform and continuing a strategy that is visibly failing.
That direction need not be radical. It needs to be consistent. Gradual taxation of high-value urban property. Rational treatment of capital gains. Serious assessment of large agricultural incomes without penalising small farmers. Transparency around exemptions, with automatic expiry rather than permanent privilege. None of this would deliver instant windfalls. But it would change expectations and expectations are the currency of tax systems.
Most importantly, it would begin to restore legitimacy. People pay taxes not because they enjoy it, but because they believe the system is broadly fair and the state reciprocates. A system that taxes phones like luxuries, prices energy to cover past failures, and spares visible wealth cannot sustain that belief.
Pakistan’s tax crisis is often described as a problem of scarcity. In reality, it is a problem of the distribution of who is asked to pay and who is not. Around the world, governments are discovering that fiscal sustainability without fairness is an illusion. Pakistan has repeatedly learned this lesson – but ignored it each time.
Taxing phones while sparing fortunes may keep the lights on for another quarter. It will not build a state capable of growth, legitimacy or resilience. Escaping this trap requires confronting privilege, not avoiding it. Until then, Pakistan will continue to collect more from those who cannot hide and wonder why reform never quite arrives.
The writer is a senior lecturer in finance, leading International and Transnational Education at Birmingham City University’s College ofAccountancy, Finance and Economics. He tweets/posts @HafizUsmanRana
