Loud Thinking

Dos and Don’ts for the Government of Pakistan Before Presenting Budget 2026–27

As Pakistan prepares to unveil Budget 2026–27, policymakers face a defining challenge: whether the budget will serve as an instrument for economic relief, 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.

The government should seriously consider revising the income tax structure for salaried individuals as follows:

Monthly salaries up to Rs. 300,000 — Tax-free

Monthly salaries above Rs. 300,000 and up to Rs. 1,000,000 — 5% tax

Monthly salaries above Rs. 1,000,000 and up to Rs. 1,500,000 — 10% tax

Monthly salaries above Rs. 1,500,000 and up to Rs. 2,000,000 — 15% tax

Monthly salaries above Rs. 2,000,000 and up to Rs. 5,000,000 — 20% tax

Monthly salaries above Rs. 5,000,000 — 30% tax

All civil and security related personnel posted in the provinces of Baluchistan, KPK and GB must be allowed tax free salaries. Moreover, Polio Eradication Field Staff performing duties all over the country must be given tax free salaries with three times immediate raise in their salaries.

Such a structure would provide meaningful relief to middle-income earners while ensuring that higher-income groups continue to contribute a fair share toward national development.

Such measures would:

• Increase disposable income;
• Stimulate domestic demand and enhance economic growth;
• Encourage voluntary tax compliance;
• Strengthen the middle class;
• Improve 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 tax system, rather than repeatedly imposing higher taxes (by just sitting in the comfort of the air-conditioned offices) on those who are already compliant taxpayers.

Meaningful documentation and taxation of retail, wholesale, agricultural, and informal sectors would create a more equitable and sustainable fiscal framework.

DO #3: Review Preferential Tax Treatments

The International Monetary Fund, in its 2024 Article IV Consultation and Extended Fund Facility Staff Report on Pakistan, has clearly underscored a structural distortion in the country’s fiscal system: a tax regime heavily weakened by extensive exemptions and preferential treatments embedded in the Second Schedule of the Income Tax Ordinance. In essence, these so-called concessions function as a parallel system of reliefs that continuously erode the tax base and shift the burden onto compliant taxpayers. The IMF estimates that these tax expenditures amount to around 4–4.5 percent of GDP annually, translating into a staggering $15–21 billion (approximately PKR 4–6 trillion) in lost revenue every year. This is not a marginal inefficiency; it is a massive fiscal leakage that undermines the state’s ability to invest in development, infrastructure, and social services. The Fund has repeatedly stressed that without aggressively rationalizing these exemptions and broadening the tax net, Pakistan will remain trapped in a cycle of repeated tax hikes on existing filers while large segments of the economy continue to operate under protected, undertaxed regimes.

In view of the foregoing, Prime Minister Shehbaz Sharif should urgently direct the relevant authorities to undertake a comprehensive review of tax exemptions, concessions, and preferential tax arrangements. The objective should be to restructure fiscal policy in a way that enables the Budget 2026–2027 to deliver meaningful relief to the public, particularly the downtrodden segments of society that are struggling under the burden of rising prices of petroleum products and other essential commodities. This pressure has been further intensified by ongoing geopolitical tensions in the region. A well-designed reform of the tax system is essential to create fiscal space for a more equitable and relief-oriented budget.

Citizens expect a tax system based on fairness, transparency, and equal treatment.

A credible review would improve public confidence and strengthen perceptions of tax justice.

DO #4: Prioritize Employment Generation

No country can successfully reduce poverty without creating jobs.

Budget allocations should focus on:

• Small and medium enterprises;
• Labour-intensive industries;
• Agriculture modernization;
• Information technology;
• Skills development programs;
• Export diversification;
• Infrastructure projects with high employment potential.

A person with dignified employment is far less likely to depend on state assistance.

DO #5: Protect Essential Consumption

Indirect taxation on essential goods disproportionately affects lower- and middle-income households.

Food, medicines, education, healthcare, and public transportation should remain affordable.

Fiscal policy should protect essential consumption rather than make survival increasingly expensive.

DO #6: Establish an Essential Cost Protection Framework

One of the most effective anti-poverty measures would be to protect citizens from excessive increases in essential living costs.

The government should establish a comprehensive framework aimed at controlling unreasonable increases in:

• Essential food items;
• School fees;
• School stationery;
• School uniforms and shoes;
• Essential healthcare services;
• Residential rents;
• Utility charges affecting low-income households.

Education must never become unaffordable because of escalating ancillary costs.

Similarly, housing should remain accessible to working families. Excessive rent increases have become one of the largest contributors to declining living standards in urban Pakistan.

The government should therefore consider:

• Limits on annual school fee increases;
• Monitoring of compulsory educational expenses;
• Tenant protection measures;
• Reasonable rent regulation mechanisms;
• Anti-profiteering initiatives in essential markets.

DO #7: Measure Budget Success Through Poverty Reduction

The success of Budget 2026–27 should be measured through:

• Poverty reduction;
• Employment creation;
• Growth in real incomes;
• Improved access to education;
• Better healthcare outcomes;
• Enhanced social mobility.

Revenue collection should be viewed as a means to achieve these objectives rather than an objective in itself.

What the Government Must Not Do

DON’T #1: Continue Treating Salaried Taxpayers as the Easiest Revenue Source

Repeatedly increasing taxes on compliant taxpayers discourages productivity, savings, investment, and economic optimism.

The salaried class cannot indefinitely shoulder a disproportionate share of the nation’s tax burden.

DON’T #2: Increase Indirect Taxes on Essential Goods

Indirect taxes often affect the poor more severely than the wealthy.

Any additional burden on food, utilities, transportation, education, and healthcare directly contributes to poverty.

DON’T #3: Ignore the Link Between Inflation and Poverty

Inflation is not merely a statistical indicator.

For millions of families, inflation determines whether they can afford food, medicine, education, and shelter.

Budgetary decisions must therefore prioritize controlling living costs.

DON’T #4: Protect Privileged Exemptions at the Expense of Ordinary Citizens

Fiscal justice requires that all sectors contribute according to their capacity.

Special privileges that shift the burden onto compliant taxpayers should be reviewed and rationalized.

DON’T #5: Confuse Revenue Growth with Economic Success

A government may collect record revenues while citizens become poorer.

True economic success is reflected in:

• Reduced poverty;
• Higher employment;
• Greater purchasing power;
• Improved living standards;
• Increased social and economic opportunity.

Conclusion

Budget 2026–27 presents an opportunity to redefine Pakistan’s economic priorities.

The central objective should not merely be to satisfy revenue targets or achieve short-term fiscal gains. It should be to protect citizens, reduce poverty, create employment, and restore confidence in the future.

A budget that broadens the tax base, reduces the burden on salaried individuals, protects families from rising living costs, ensures fair taxation across sectors, and prioritizes employment generation can become a genuine instrument of national development.

However, if taxes continue to rise while poverty continues to increase, if education and housing become increasingly unaffordable, and if compliant taxpayers continue to bear a disproportionate burden, then serious questions will inevitably arise about the direction of public policy.

The people of Pakistan do not need a Poverty Enhancement Plan.

They need a Poverty Reduction Plan.

Budget 2026–27 should be remembered as the moment when economic policy shifted from extracting more from struggling citizens to creating opportunities for them to prosper.

Syed Nayyar Uddin Ahmad

Lahore – Pakistan

+92 321 9402157

4^st June, 2026

nayyarahmad51@gmail.com The writer is a senior corporate leader and strategic analyst. His thought-provoking visionary insights have reshaped global discourse, capturing the attention of world leaders. His writings have not only resonated with heads of state and governments but have also influenced the foreign policies of the United States and other major powers.