ISLAMABAD:

In recent years, the annual federal budget of Pakistan has become a stereotypical exercise of repackaging and introduction of new taxes to increase the revenue and rhetoric of austerity measures. It is quite difficult to find any bold or game-changing ideas to go beyond a narrow fiscal umbrella.

Interestingly, as preparations for the federal budget for fiscal year 2026-27 are going on, the nation stands at a critical economic crossroads, like almost always. With the Extended Fund Facility (EFF) of the International Monetary Fund (IMF) concluding in late 2027, this budget must serve as a definitive bridge between sheer macroeconomic stabilisation and long-term, self-sustaining growth.

For decades, Pakistan’s fiscal policy has been trapped in a cycle of short-term revenue extraction, often burdening the compliant sectors while shielding the undocumented and politically influential. To break this cycle and stimulate genuine economic dynamism, the upcoming budget must shift away from merely tweaking tax rates and instead embrace profound structural redesigns.

Here are the game-changing proposals that could redefine Pakistan’s fiscal trajectory. First and foremost, there ought to be a radical overhaul of the taxation system. Pakistan’s current tax-to-GDP ratio remains critically low, largely because the system relies heavily on indirect, consumption-based taxes and punitive withholding regimes that squeeze existing taxpayers.

In doing so, the most transformative step would be establishing a unified national tax coordination framework. Currently, businesses navigate competing federal and provincial sales tax systems, spending more time defending classifications than expanding production. Moving towards a synchronised, federalised tax agency, while maintaining constitutional guarantees for provincial autonomy, would drastically reduce the cost of doing business.

Moreover, the agricultural sector contributes significantly to the GDP but minimally to direct taxes. The outdated acreage-based assessment must be replaced with taxation on actual income. A game-changing budget would strictly distinguish between subsistence farmers (who require protection) and absentee landowners or large commercial agribusinesses (who must contribute their fair share).

In addition, instead of relying on constitutionally debated measures like taxing “fictional income” on property, provinces must be incentivised to modernise their valuation systems. Imposing a progressive, recurrent tax on speculative urban landholdings will discourage unproductive capital parking and redirect wealth into productive, job-creating industries.

Secondly, it is important to ignite the industrial and productive sector competitiveness and export dynamism. Persistent de-industrialisation and stagnant exports are systematic threats to Pakistan’s economy. High energy tariffs and policy rates have severely hampered domestic productive capacity.

A growth-oriented budget must align energy pricing and tariff structures to support industrialisation. Incentivising large conglomerates to undertake capital-intensive, long-gestation projects can only happen if the cost of borrowing and electricity is brought down to regionally competitive levels.

Pakistan cannot champion export-led growth while simultaneously crushing exporters with advance taxes, super taxes, and delayed refunds. Exporters must be entirely insulated from this cycle of over-taxation to regain a competitive edge in global markets.

To tackle bureaucratic red tape, the budget should fund the creation of a “Pakistan Single Window” for domestic business operations. Integrating permits, licences, and No-Objection Certificates (NOCs) into a single digital portal would vastly improve the ease of doing business and encourage the formalisation of the economy.

Thirdly, we must move towards performance-driven governance and expenditure rationalisation. Fiscal consolidation cannot be achieved through revenue mobilisation alone; the expenditure requires equally aggressive reform.

As a first step, federal ministries and provincial departments must shift from process-driven administration to performance-based management. Annual budget allocations should be strictly tied to business plans with measurable KPIs. High-performing departments should be rewarded, while chronic under-performers face restructuring.

Moreover, the provinces should consolidate fragmented labour laws into a unified code. Streamlining schemes like social security, the Workers Welfare Fund, and the Employees’ Old-Age Benefits Institution (EOBI) will ensure fair compensation and post-retirement security for workers, thereby boosting labour productivity and dignity.

Fourthly, we need to have a post-IMF strategic growth roadmap. The 2026-27 budget must clearly articulate a vision that survives beyond IMF conditionalities. This requires leveraging the National Economic Council (NEC) not just as a rubber stamp for development plans, but as a proactive body to approve integrated budgetary frameworks across all provinces.

Furthermore, targeted allocations toward mineral development, oil and gas exploration, maritime export strategies, and the meaningful industrialisation of underutilised assets such as Gwadar will lay the groundwork for a resilient, diversified economy.

The upcoming federal budget for 2026-27 cannot be just another annual accounting exercise. It must be a bold declaration of intent. By dismantling preferential exemptions, digitising governance, and fostering an environment where private enterprise can thrive without being treated as an easy extraction point, Pakistan can finally graduate from crisis management to sovereign economic prosperity.

THE WRITER IS AN INTERNATIONAL ECONOMIST