As Pakistan prepares to unveil Budget 2026–27, policymakers face a defining challenge: whether the budget will serve as an instrument for economic relief, an engine for growth and poverty reduction, or become yet another exercise in revenue extraction from an already burdened population.
A national budget must ultimately be judged not by the amount of taxes collected, but by its impact on the lives of ordinary citizens. If government revenues continue to increase while poverty, unemployment, inflation, and economic insecurity simultaneously worsen, then the nation must honestly question the effectiveness of its fiscal policies.
If poverty continues to expand despite higher taxation and increasing government receipts, future budgets may be remembered not as development plans but as a “Poverty Enhancement Plan (PEP).”
The Economic Reality Facing Pakistan
Pakistan’s economy has endured several years of extraordinary stress. High inflation has eroded purchasing power, economic growth has remained insufficient to absorb new entrants into the labour market, and millions of households have witnessed a steady decline in their standard of living.
Recent assessments by international institutions, including the IMF and the World Bank, have highlighted the challenges facing the country. The World Bank has reported a significant increase in poverty levels, warning that millions of Pakistanis have fallen below the poverty line due to economic instability, inflation, and inadequate job creation.
Food prices, utility charges, transportation costs, healthcare expenses, educational expenditures, and housing rents have increased dramatically over recent years. For many households, salaries have failed to keep pace with the rising cost of living.
The consequences are visible across the country:
- Rising poverty
- Growing unemployment and underemployment
- Shrinking middle-class purchasing power
- Increased dependence on borrowing and informal support systems
- Reduced household spending on health and education
The Fundamental Question
A simple but important question must be asked:
If poverty is increasing despite higher tax collections and repeated taxation measures, what has been the justification for imposing such high tax burdens on citizens?
Taxation is not an end in itself. Taxes are collected to improve public welfare, create economic opportunities, reduce inequality, and strengthen national development.
When tax collections rise while poverty also rises, policymakers must reconsider whether the burden is being distributed fairly and whether the existing tax structure is producing the desired outcomes.
The Most Taxed Segment: Salaried Pakistanis
Among all segments of society, salaried individuals remain the most visible and compliant taxpayers.
Their taxes are deducted at source before salaries are received. They have limited opportunities for tax avoidance and bear the full impact of every increase in tax rates.
Meanwhile, significant parts of the economy continue to remain outside the effective tax net or contribute less than their potential:
- Large sections of retail trade
- Wholesale businesses
- Informal commercial activities
- Large agricultural operations
- Various sectors benefiting from exemptions, concessions, or preferential tax treatments
The result is a widespread perception that the tax burden is disproportionately concentrated on those who are already documented and compliant.
A fair tax system should ensure that taxpayers with comparable incomes contribute equitably, regardless of the source of their earnings.
What the Government Must Do
DO #1: Provide Substantial Tax Relief to Salaried Individuals
The government should substantially reduce the income tax burden on salaried persons.
Inflation has significantly reduced the real value of incomes. A salary that once provided financial security now often struggles to meet basic household expenses.
Proposed revised tax structure:
- Monthly salaries up to Rs. 300,000 — Tax-free
- Rs. 300,000 to Rs. 1,000,000 — 5% tax
- Rs. 1,000,000 to Rs. 1,500,000 — 10% tax
- Rs. 1,500,000 to Rs. 2,000,000 — 15% tax
- Rs. 2,000,000 to Rs. 5,000,000 — 20% tax
- Above Rs. 5,000,000 — 30% tax
All civil and security personnel posted in Balochistan, KPK, and Gilgit-Baltistan should be granted tax-free salaries. Additionally, Polio Eradication Field Staff working nationwide should also receive tax-free salaries along with a threefold immediate salary increase.
Such a structure would provide meaningful relief to middle-income earners while ensuring higher-income groups continue contributing fairly.
Expected outcomes:
- Increased disposable income
- Stimulated domestic demand and economic growth
- Encouraged voluntary tax compliance
- Strengthened the middle class
- Improved economic confidence
DO #2: Broaden the Tax Base Instead of Increasing Tax Rates
Pakistan’s challenge is not merely low revenue collection but a narrow tax base.
The focus should be on expanding the tax base by bringing untaxed and undertaxed sectors into the formal system, rather than repeatedly increasing taxes on compliant taxpayers.
DO #3: Review Preferential Tax Treatments
The IMF, in its 2024 Article IV Consultation and Extended Fund Facility report on Pakistan, highlighted a structural distortion in the fiscal system: extensive exemptions and concessions embedded in tax laws.
These concessions act as a parallel system that erodes the tax base and shifts the burden onto compliant taxpayers.
The IMF estimates these tax expenditures amount to 4–4.5% of GDP annually, or approximately $15–21 billion (PKR 4–6 trillion) in lost revenue each year.
Without rationalizing these exemptions and broadening the tax net, Pakistan risks remaining trapped in cycles of repeated tax hikes on existing filers while large parts of the economy remain undertaxed.
A comprehensive review of exemptions and concessions is urgently required to create fiscal space for relief-oriented budgeting.
DO #4: Prioritize Employment Generation
No country can reduce poverty without creating jobs.
Budget priorities should include:
- Small and medium enterprises
- Labour-intensive industries
- Agricultural modernization
- Information technology
- Skills development programs
- Export diversification
- Infrastructure with high employment potential
DO #5: Protect Essential Consumption
Indirect taxation on essential goods disproportionately affects lower- and middle-income households.
Food, medicines, education, healthcare, and public transport should remain affordable.
DO #6: Establish an Essential Cost Protection Framework
A comprehensive framework should be established to control excessive increases in:
- Food items
- School fees
- Stationery
- Uniforms and shoes
- Healthcare services
- Residential rents
- Utility charges
Education must not become unaffordable due to rising ancillary costs.
Similarly, housing affordability must be protected through tenant safeguards, rent regulation mechanisms, and anti-profiteering measures in essential markets.
DO #7: Measure Budget Success Through Poverty Reduction
Budget 2026–27 should be evaluated based on:
- Poverty reduction
- Employment creation
- Growth in real incomes
- Access to education
- Healthcare outcomes
- Social mobility
Revenue collection should be a means to achieve these goals, not the goal itself.
What the Government Must Not Do
DON’T #1: Overburden Salaried Taxpayers
Repeated tax increases on compliant taxpayers discourage productivity, savings, and investment.
DON’T #2: Increase Indirect Taxes on Essential Goods
Such taxes disproportionately hurt the poor.
DON’T #3: Ignore Inflation’s Impact on Poverty
Inflation directly affects access to food, medicine, education, and shelter.
DON’T #4: Protect Privileged Tax Exemptions
All sectors must contribute fairly based on capacity.
DON’T #5: Confuse Revenue Growth with Economic Success
True success is reflected in:
- Reduced poverty
- Higher employment
- Greater purchasing power
- Improved living standards
- Increased opportunity
Conclusion
Budget 2026–27 presents an opportunity to redefine Pakistan’s economic priorities.
The goal should not merely be revenue maximization but poverty reduction, employment creation, and restoration of public confidence.
A budget that broadens the tax base, reduces the burden on salaried individuals, protects families from rising living costs, and ensures fair taxation across sectors can become a true instrument of national development.
However, if taxes continue to rise while poverty increases, serious questions will arise about policy direction.
Pakistan does not need a Poverty Enhancement Plan.
It needs a Poverty Reduction Plan.
Budget 2026–27 should be remembered as the moment economic policy shifted from extraction to empowerment.
The writer is a senior corporate leader and strategic analyst. His insights have influenced global discourse and have been referenced in policy discussions internationally.
