With the next budget fast approaching, ordinary people and businesses across the country are waiting to see what it will cost them this time. Both groups are reeling from high taxes, tariffs and inflation and would like some substantial relief for the next fiscal year. Their chances of getting it however, do not seem great. The IMF concluded a week-long visit to Pakistan on Wednesday and has said that the authorities have committed to a primary surplus target of 2.0 per cent of GDP for FY2026-27 and reports say that the government has committed to introducing additional revenue measures worth Rs430 billion and increasing the petroleum levy target by 17.6 per cent in the upcoming budget. While some reports have hinted at potential relief for the salaried class and certain commercial sectors, one wonders how meaningful it could be, given growing revenue-collection pressures and a tax-collection apparatus struggling to meet its targets. And, for all the talk of broadening the tax base, this is by now a well-worn trope in Pakistani economic news. While new agricultural income tax rates will reportedly be applied in the upcoming fiscal and the government has been mulling a new scheme to bring retailers into the tax net, it remains to be seen whether these moves will be sufficient.
The upcoming budget will also reportedly include provincial tax revenue targets aiming to contribute an additional 0.3 percentage points of GDP to the tax-to-GDP ratio (Rs400 billion) and the provinces will mobilise revenue by continuing to steadfastly expand the enforcement of the GST on services to gradually cover all sectors of the economy. This, combined with the increase in the petroleum levy, is ominous for those who survive on a salary, as they end up spending a greater portion of their income and are thus more sensitive to indirect taxation. Then there are the clouds of the Middle East conflict to consider. While one hopes it will be over by the time the next budget takes effect, there is also a chance it could drag on. Independent economists have expressed fears that inflation, already creeping back into the double digits last month, might go up to 11 per cent on average and the SBP might opt for further tightening of monetary policy in the next fiscal year. This does not exactly look promising for growth and investment, both of which could potentially offset a higher tax burden.
Underneath it all is the weight of reforms left undone. While one can conceivably blame the Middle East conflict for the resurgence of inflation and the current account swinging back into deficit, it is worth asking why more steps were not taken earlier to reduce Pakistan’s reliance on imported fuels, something that has long been pointed to as a weak point that needs to be addressed. The 31 per cent decline in FDI over the first 10 months of the current fiscal year also indicates that investors still do not view Pakistan as a good place to do business, and that the economy remains uncompetitive globally. Exports and investment are often cited as the keys to solving the nation’s economic malaise, but progress on either is not sufficient. As such, the upcoming budget risks being a retread of its predecessor, one which some analysts say has not delivered stability through structural reforms, productivity enhancement, broadening of the tax base or prudent developmental planning but aggressive extraction through blunt tools like the petroleum levy, under-spending on development and reduced interest payments due to lower policy rates. If the latter is taken out of the mix, as some fear, then the government will not even be able to tout stability as the price for all the pain the people endure.
