THERE is an ancient principle of just taxation, articulated across every serious tradition of political philosophy from Ibn Khaldun to Adam Smith, that a state must tax what it can fairly reach rather than simply what it can most easily find. The distinction matters enormously, because the easiest things to tax are rarely the fairest things to tax and a fiscal system built on convenience rather than equity does not merely collect revenue. It redistributes the burden of the state downward, onto those least able to carry it, while releasing upward those most able to contribute. Pakistan’s electricity bill has become the most eloquent illustration of how completely that principle has been abandoned.
Federal Board of Revenue informed the Senate this week that it collected Rs 476 billion in taxes through electricity bills in FY2026 alone. Across the previous fiscal year it collected Rs 562 billion through the same mechanism and Rs 515 billion the year before that.
The four-year cumulative total approaches Rs 1.9 trillion, extracted not through a broad, equitable tax system applied across the economy but through a single monthly document that arrives in every household regardless of income, regardless of tax liability and regardless of whether the person paying it has ever been assessed for taxation at all. The collections in FY2026 included Rs 351 billion in sales tax and Rs 124 billion in income tax, with income tax drawn from industrial consumers, commercial users, non-filer domestic consumers and even ordinary household consumers under Section 235 of the Income Tax Ordinance.
The architecture of this system rewards evasion and penalizes compliance with a consistency that would be remarkable if it were not so familiar. In inflation-adjusted terms, Pakistan’s tax collection in 2024 was at the same level as in 2008 and 2016, despite increases in the minimum income tax rate from five percent to fifteen percent and rising rates for the salaried class, a damning indictment of a system that has repeatedly raised rates on those already paying while failing to bring new taxpayers into the net. Between Rs 400 billion and Rs 500 billion in adjustable income tax withholding goes unclaimed annually, meaning that people outside the formal tax net are content paying indirect taxes embedded in their utility bills rather than entering a system they neither trust nor benefit from, while those not liable to pay income tax at all continue absorbing withholding deductions because the state has found it easier to collect first and adjudicate liability never.
A parliamentary panel member described tax collection through electricity bills as tantamount to coercion, a characterization the FBR chairman did not dispute, instead warning that electricity may face additional taxes on the grounds that it receives the highest concessions.
The concessions argument deserves examination because it reveals the moral logic of the system with uncomfortable clarity. Pakistan’s retail sector, comprising an estimated 3.5 million retailers, has been offered a fixed tax scheme with no audit provisions, an arrangement one parliamentarian accurately described as a tax amnesty for those who have never paid. The National Assembly panel cleared this scheme on the grounds that the government must start somewhere to bring retailers into the tax net, while the salaried class, which has no such exemption from audit or accountability, continues to be withheld from at source with no equivalent consideration. Agriculture, contributing nearly a quarter of GDP, remains substantively untaxed. Real estate, absorbing enormous domestic liquidity, contributes a fraction of what comparable economies extract from property transactions. The informal sector, estimated at between 35 and 40 percent of the total economy, operates largely outside the fiscal system entirely. The electricity bill taxes everyone who cannot afford to opt out, which is to say it taxes Pakistan’s formal working and middle classes and then presents the resulting revenue figure as evidence of fiscal effort.
This is not merely an injustice, though it is plainly that. It is a strategic failure with compounding consequences. A tax system perceived as coercive and inequitable generates the compliance resistance that produces the low tax-to-GDP ratio that produces the fiscal pressure that produces the coercive collection mechanisms that reinforce the perception of inequity. Pakistan’s tax-to-GDP ratio sits at approximately 10 to 11 percent, among the lowest for any country of comparable size, not because the country lacks taxable economic activity but because the political economy of taxation has consistently chosen the path of least resistance over the path of greatest fairness. Taxing a retailer requires political will. Taxing an electricity bill requires a formula.
Genuine fiscal reform does not begin with finding new things to embed in existing bills. It begins with the recognition that a state unable to distinguish between a taxable citizen and a non-taxable consumer has not built a tax system. It has built a collection mechanism and collection mechanisms do not produce the social contract that sustainable taxation requires. Ibn Khaldun observed six centuries ago that excessive and unjust taxation destroys civilization by destroying the productive activity that taxation is meant to support. Pakistan is not yet at that point. But a state that has chosen the electricity meter as its primary instrument of fiscal reach is not moving away from it.
—The writer is PhD in Political Science, and visiting faculty at QAU Islamabad.
