Disappointing budget: Taxing the vulnerable, appeasing the powerful

The failure of the government budget for the fiscal year 2024-25 to address the core problems ailing Pakistan’s economy has been a major disappointment. The government has opted for the easy route of raising taxes on individuals who are already subject to the law, especially the salaried class, rather than enacting urgently needed changes. Meanwhile, it has continued to curry favor with influential interest groups that have long avoided paying taxes.
The legitimacy of an already unfair tax system has been further damaged by the budget. Now, the tax burden for the salaried class is a startling 35%, with an extra 3.5% “super tax” for individuals making Rs.10 million or more a year. In the meanwhile, despite their enormous economic influence, major industries including merchants, farmers, real estate owners, speculators, and service providers are mostly untaxed.
The government’s misguided endeavor to increase revenue has not addressed the underlying reasons of tax cheating. Given the pervasive corruption inside the Federal Board of Revenue (FBR), the punitive measures and expanded powers bestowed upon it are unlikely to produce meaningful outcomes.
Furthermore, the spending priorities of the administration are quite alarming. While millions of rupees are spent on subsidies for the wealthy, the impoverished find it difficult to cover their power costs. Due to their forced reliance on private healthcare, education, and basic needs, the salaried class receives little in return for paying a large amount of their income in taxes.
Most concerning is the budget’s disregard for the urgent social concerns facing the nation. Pakistan trails behind in important human development metrics, including high rates of malnutrition, millions of school-age children, and limited access to essential services. To achieve sustained economic growth, any government should prioritize investing in the welfare of its citizens.
The government cannot justify the lack of tax on powerful interests while burdening the salaried class. This budget demonstrates a clear inequity in the tax system that further erodes its legitimacy. Taxing the Vulnerable, Appeasing the Powerful, the budget has increased taxes significantly on the salaried class, with the top earners paying an additional “super tax” of 3.5%.
Meanwhile, powerful sectors like retailers, agriculturists, real estate owners, and service providers remain largely untaxed, despite their significant economic influence.
Ineffective Measures to Increase Revenue, increasing punitive measures and FBR powers is unlikely to yield results, given the widespread corruption within the institution. The government has failed to address the root causes of tax evasion by these powerful groups.
Misplaced Expenditure Priorities, the government continues to provide massive subsidies and perks to privileged sectors and groups, while the poor struggle to pay basic bills. Investments in critical areas like education, healthcare, and infrastructure remain woefully inadequate.
Lack of Legitimacy and Accountability, A legitimate tax system requires the government to have legitimate authority and to use tax revenues for the benefit of all citizens, not just the elite.
By burdening the salaried class while appeasing powerful interests, the government has further eroded the legitimacy of the tax system.
The government cannot justify this highly inequitable budget that places an unfair tax burden on the vulnerable while allowing the powerful to evade their fair share. Meaningful reform to create a legitimate, equitable, and accountable tax system is sorely needed.