Pakistan's coming FY27 budget is being pulled between a debt-heavy state, a dissatisfied business class and demands for deeper reform, as exporters, traders and lawmakers warn that short-term revenue measures can no longer carry an economy strained by weak growth, high borrowing needs and a narrow tax base.
The central challenge for economic managers is how to frame a budget for a country long dependent on foreign loans and burdened by repeated refinancing pressures. Sluggish exports, rising import costs and low tax revenues have made deficit financing harder, forcing fresh borrowing to service old debt and interest payments.
Pakistan's tax-to-GDP ratio has remained around 10%, far below the Asia-Pacific average of 19%. One assessment argues that small increases through temporary adjustments are not enough, and that the country should aim for a tax-to-GDP ratio of 15% by FY2028-29.
Debt servicing has become another heavy constraint. Interest payments account for more than 42% of total expenditure, crowding out private borrowers, increasing external-financing risks and adding pressure on the rupee. The situation is described as unsustainable unless the economy generates a surplus.
The call for change is no longer confined to commentators. The National Assembly Standing Committee on Finance and Revenue has directed the Tax Policy Unit of the Ministry of Finance and the Federal Board of Revenue to ensure that the federal budget for 2026-27 moves beyond short-term stabilisation and becomes a platform for sustainable reform, fiscal transparency, better governance and inclusive growth.
The committee expressed concern over continued reliance on indirect taxation and petroleum levies instead of durable tax-base expansion. Its chairman, Syed Naveed Qamar, also raised concern over circular debt, slow reform of state-owned enterprises and rising socioeconomic pressures caused by inflation, unemployment and poverty.
The criticism echoes wider unease over the structure of taxation. One article argues that Pakistan remains trapped in a cycle of low growth, debt dependence, indirect taxation, elite capture, external shocks and revenue policies shaped by the lender of last resort.
It says the annual budget-making exercise too often squeezes already documented sectors, including salaried workers, formal businesses, exporters and compliant taxpayers, while large untaxed and undertaxed segments remain protected. The result, according to this argument, is stagnant productivity, weak industrial competitiveness, inequality, persistent fiscal deficits and dependence on borrowing.
A central proposal is to move away from taxing production and towards taxing unearned wealth accumulation and speculative rent-seeking. The argument is that real estate gains, monopolistic share trading, cartelisation and state patronage generate large amounts of wealth, while manufacturing and exports face disproportionate burdens.
The article calls for reducing taxes on productive sectors and applying effective taxation to idle and speculative assets. It argues that the current framework discourages industrialisation, value addition and formalisation.
Exporters are at the heart of the dispute. The Pakistan Textile Council has urged Prime Minister Shehbaz Sharif to introduce sweeping fiscal and structural reforms in the upcoming budget, warning that the present tax and regulatory framework has made export growth 'financially punitive' and unsustainable.
In a supplementary submission, PTC Chairman Fawad Anwar said Pakistan's largest export sector was facing a severe liquidity crisis due to excessive taxation, delayed refunds and regulatory inefficiencies. The council said exporters operate on thin profit margins of 3-4%, yet the tax regime erodes or exceeds those gains.
According to the council, on every Rs100 billions of exports, nearly Rs20 billion is deducted or blocked through GST and advance income tax. Delays in refunds, often lasting months or years, further reduce available working capital.
The council argued that higher exports can paradoxically increase financial pressure on firms because more capital is frozen through taxes and refund delays. It said exporters face an effective tax rate of up to 113%, compared with 35% in India, 28% in Bangladesh and 20% in Vietnam.
A particular complaint concerns the 2% advance tax on gross turnover. For firms operating at a 3% margin, the tax alone consumes nearly 67% of annual profits. The council called this structurally inequitable because domestic businesses are taxed on profits while exporters are taxed on turnover, even in loss-making years.
The PTC estimates that Rs828 billion, or about $3 billion, of exporters' capital is trapped in the regulatory system. This includes Rs327 billion in outstanding refunds, some pending since 2011; Rs200.9 billion in advance-tax blockages; and Rs300 billion locked in GST on inventory.
The annual financing cost of this stuck capital is estimated at about Rs99 billion, limiting the sector's ability to expand production. The council warned that the system becomes self-reinforcing because every increase in exports traps more capital rather than releasing funds for reinvestment.
The textile body has proposed restoring the Final Tax Regime at 1% of export turnover, ensuring refunds within 60 days with penalties for delays, releasing Rs327 billion in outstanding refunds, abolishing super tax on exporters, reducing the corporate tax rate from 29% to 26%, and cutting employers' EOBI contribution to 2% after a transition period.
Its argument on EOBI is based on an actuarial case that the fund is financially robust. The council said projections show the fund could grow to Rs754.74 billion by FY2026, with investment income exceeding benefit payments and solvency lasting until at least 2038 under the base scenario and 2074 under an extended projection.
Traders are pressing for simpler treatment as well. Minister of State for Finance Bilal Azhar Kayani met a delegation of Markazi Tanzeem Tajran, Pakistan, led by Kashif Chaudhry, and assured them that their proposals for a simplified tax scheme would be reviewed for the 2026-27 budget.
The traders called for an 'Asan Tax Scheme', arguing that simpler procedures would broaden the tax net and improve trust between businesses and tax authorities. They also sought business-friendly regulatory measures for retail and wholesale sectors and highlighted bottlenecks in the current taxation system. Kayani said the proposals would be reviewed carefully to balance revenue generation with commercial growth and strengthen cooperation between the government and business community.
The wider budget debate also includes calls for a simpler tax code. One proposal suggests a system with low rates, broad bases and fewer exemptions, supported by a one-page income-tax return for salaried individuals, pensioners and small businesses with modest turnover.
Another recommendation is to replace the existing fragmented and politicised tax structure with an independent National Tax Agency operating under constitutional safeguards and parliamentary oversight. The aim would be to broaden the base through data integration, growth and cooperative compliance rather than arbitrary revenue targets.
Fiscal federalism has also emerged as a point of contention. One article argues that the use of petroleum levies, while keeping GST on petroleum products at zero, deprives provinces of their share under Article 160 of the Constitution. It calls for restoration of a transparent GST regime on petroleum products along with a reduced petroleum levy burden.
Agriculture is another proposed area of reform. The articles call for progressive taxation of large absentee landholdings and corporate farming while supporting small farmers, cooperatives and value-added agro-industries. They also argue that the agricultural sector needs annual funding above Rs3.5 trillion, while private-sector credit should reach at least Rs3 trillion to support growth of more than 5% over the next three to five years.
External risks complicate the picture. Geopolitical uncertainties, high oil prices, irregular shipping routes, supply limitations and uncertainties around the Strait of Hormuz are cited as threats to stability. One assessment says exports are unlikely to recover significantly under these conditions.
The same assessment suggests stricter import controls on cars, electronics, mobile phones and selected products through budgetary measures until geopolitical pressures ease. It also calls for contingency planning for oil, gas and food, including consideration of a temporary six- to 12-month ban on exports of food and essential commodities.
The budget, then, is not merely an accounting exercise. It has become a test of whether Pakistan can move from borrowing and extraction towards a more credible economic compact. Without changes in taxation, spending, refunds, debt management and governance, the coming fiscal plan risks becoming another short-term fix for a long-running crisis.