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Pakistan's Broken Social Contract: High Taxes, Zero Welfare for Citizens

A Pakistani media article critiques the state's imposition of high, regressive taxes that provide no welfare return to citizens, breaking the social contract. It highlights a structural crisis where doing business is 34% more expensive than in comparable South Asian economies, as per a private sector analysis. The tax burden falls on a tiny captive segment—only 4% of the workforce—while the informal elite and large sectors remain untaxed. This irrational taxation fuels a shocking debt-to-tax ratio and weakens the formal economy instead of generating effective revenue.

Key Points: Pakistan's High Taxes Yield No Welfare, Says Media Report

  • Regressive taxes push cost of living higher
  • State shows apathy to vulnerable citizens
  • Business costs 34% higher than regional peers
  • Only 4% of workforce are effective taxpayers
  • Debt-to-tax ratio exceeds 700%
3 min read

'Pakistan's citizens pay high taxes but get nothing in return'

Pakistani article laments high, regressive taxes with no social return, breaking the social contract and crippling the formal economy.

"we have declared war on the middle class - The Friday Times article"

New Delhi, Feb 22

Pakistan's successive governments, both civil and military, have been imposing higher and regressive taxes, pushing the overwhelming majority of citizens towards an unbearably high cost of living, and adding insult to injury, the state provides nothing in terms of welfare and has total apathy towards the economically vulnerable segments of society, an article in the Pakistani media said.

Pakistan's fiscal crisis is not simply about deficits and numbers. It is about a broken social contract-a growing disconnect between what citizens pay and what they receive. High taxation without welfare delivery has not only failed to generate effective revenue but also has eroded trust, discouraged investment, and weakened the formal economy, the article in the Lahore-based The Friday Times lamented.

Pakistan's growth failure is often explained through familiar cliches: low productivity, weak exports, lack of innovation, or insufficient entrepreneurship. These are symptoms, not causes. The real problem lies deeper-in a state-engineered cost structure that has made doing business prohibitively expensive and structurally irrational, it said.

The article cites a recent private sector analysis reported by Nikkei Asia, which has quantified what businesses have been saying for years: operating a business in Pakistan is 34 per cent more expensive than in comparable South Asian economies. According to the study conducted by the Pakistan Business Forum (PBF), the excess cost is not incidental or cyclical. It is structural, cumulative, and policy-induced.

"With only 3.4 million effective taxpayers, a mere 4 per cent of the 85.6 million-strong workforce funding the entire state, we have declared war on the middle class. Having forced this captive minority to bridge a multi-trillion rupee deficit while the informal elite remain untouched, we have classified excellence as a taxable offence and transparency as a path to insolvency, the article states," the article said.

The tragedy is not that Pakistan collects too little (which is a myth in terms of the tax-to-GDP ratio in our peculiar milieu), it is that it taxes irrationally-high taxes on a narrow tax base with low yield and tax expenditure of nearly Rs 5 trillion. Despite successive mini-budgets, super taxes, levies on petroleum, enhanced withholding regimes, and expanded presumptive taxation, the debt-to-tax ratio remains shocking, over 700 per cent, it noted

A microscopic segment of the population -- salaried individuals, documented businesses, corporate entities, and compliant exporters -- finances a bloated public apparatus. The informal economy thrives, retail and wholesale sectors remain largely undocumented, agriculture as a sector is scarcely taxed, and real estate speculation continues under preferential regimes. Instead of broadening the base, fiscal managers repeatedly resort to increasing rates on the already documented, it added.

- IANS

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Reader Comments

S
Sarah B
Reading this from a development economics perspective, the "broken social contract" is the key phrase. When citizens don't see their taxes translating into public goods, trust evaporates. It's a cautionary tale for any nation. The 34% higher business cost is a shocking statistic that would cripple any private sector.
R
Rohit P
"Declared war on the middle class" – that line hits hard. It's the same story in many places, isn't it? The salaried professional bears the brunt while the big fish swim free. Hope our policymakers are reading this and ensuring our system doesn't go down that path. GST was a step to broaden the base here.
A
Ananya R
Very sad for the common people there. Ultimately, it's always the aam aadmi who suffers, whether here or across the border. The article mentions agriculture and real estate being undertaxed—sounds familiar. A fair system must bring all sectors into the net. Wishing stability and prosperity for all our neighbours 🙏.
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Karthik V
While the analysis seems accurate, we must be careful not to view this with any sense of superiority. We have our own issues with tax compliance and inefficient expenditure. The debt-to-tax ratio of 700% is terrifying though. It shows the fundamental flaw of taxing not for development, but just to service existing debt.
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Michael C
The structural cost of business being so high explains the lack of FDI and economic stagnation. No economy can grow if it's 34% more expensive to operate than your regional peers. This is basic economics. The political will to tax the agricultural and informal elite seems to be missing everywhere.

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