New Delhi, May 17 (IANS) Pakistan’s upcoming federal budget is likely to reflect an economy constrained by prolonged stabilisation policies, weak revenue generation and growing dependence on externally driven reforms, according to a recent economic analysis that warns the country risks slipping into a low-growth equilibrium without major structural recalibration.

According to the analysis by Sakib Berjees, the country’s economic model has become heavily centred on stabilisation measures, with annual budgets functioning more as exercises in managing constraints than as instruments of long-term economic transformation.

A major concern highlighted in the analysis is Pakistan’s persistently low tax-to-GDP ratio, which remains around 10–11 per cent, among the weakest levels for comparable emerging economies. This, the report argues, has forced the government to rely disproportionately on salaried individuals and formal-sector businesses for revenue collection, increasing pressure on documented and productive segments of the economy while leaving broader pools of wealth under-taxed.

The analysis also points to the erosion of middle-class purchasing power due to inflation and currency depreciation. It noted that an income of around Rs 100,000 per month, considered middle class in 2017 when the rupee traded near Rs 100 to the US dollar, now faces a sharply different economic reality with the currency close to Rs 300 per dollar and significantly higher living costs.

Despite this shift, tax exemption thresholds have not been adjusted adequately for inflation, resulting in what the analysis describes as structural over-taxation of fixed-income earners. It suggested that the annual tax exemption threshold should be revised closer to Rs 1.2 million to better reflect current economic conditions.

The report argued that such adjustments need not lead to revenue losses if the government redistributes the tax burden through calibrated indirect taxation in sectors capable of generating compensatory revenues without disproportionately hurting households.

The petroleum levy emerged as another area of concern. The analysis noted that the levy has risen substantially beyond earlier benchmarks associated with International Monetary Fund-supported reforms and now stands near Rs 117 per litre. Since the levy falls outside the National Finance Commission’s divisible pool, it creates a parallel stream of federal revenue that raises questions about fiscal transparency and the balance of fiscal federalism.

According to the report, increasing reliance on such centrally retained levies weakens the constitutional relationship between taxation and representation and calls for greater parliamentary scrutiny and integration into a more transparent federal revenue-sharing framework.

–IANS

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