In every conversation or meeting I’ve had recently with friends from Pakistan or the diaspora outside, one theme keeps surfacing: there’s finally a sense of cautious optimism about Pakistan’s economy.
BUDGET 2025-2026
In every conversation or meeting I’ve had recently with friends from Pakistan or the diaspora outside, one theme keeps surfacing: there’s finally a sense of cautious optimism about Pakistan’s economy.
You can feel it in how businesses are planning ahead again. You see it in conversations shifting from ‘how to stay afloat’ to ‘how to grow smartly’. The sentiment isn’t exuberant, but it’s steady, and that, in itself, is a massive win.
This uptick in confidence isn’t accidental. It’s the result of disciplined government choices over the past several months. Inflation, which was spiralling, has dropped significantly to a record low of 0.30 per cent in April 2025.
The rupee has shown resilience. Remittances are rebounding. Structural reforms, many of them tough but necessary, are starting to bear fruit. From monetary policy to energy pricing to greater alignment with IMF benchmarks, we’ve seen consistent signals that Pakistan is serious about long-term stability.
That kind of macroeconomic clarity is contagious. It creates room for private-sector confidence, which fuels investment. Investment leads to job creation and innovation. Once in motion, that virtuous wheel can fundamentally shift an economy’s trajectory.
But while the country is on track to improve on the twin deficits, a third deficit remains unresolved: the trust deficit. The lack of trust between the government and its citizens is widely caused by the disproportionate tax burden placed on one specific segment.
More than 40 per cent of Pakistan’s economy still operates informally. That includes sectors like wholesale trade, real estate, agriculture and small-scale retail, many of which remain outside the tax net. While informal players continue to grow unchecked, formal, tax-compliant businesses and individuals are burdened with compliance costs, audits, and regulatory pressures. The fiscal measures of the past that were introduced as an attempt to stabilise the economy during periods of prolonged recession have effectively created two parallel economies, one visible and over-regulated, and one hidden and undertaxed.
Only about 3.0 per cent of the population files tax returns, of which the salaried class pays a massive Rs391 billion in taxes. And that’s not just a fairness issue; it’s a growth issue. This inequity drives talent abroad, fuels brain drain and discourages formalisation. When formal businesses have to compete with informal ones that don’t pay taxes or follow the same rules, it also distorts the playing field. It discourages investment, deters expansion, and chips away at taxpayers' trust in the system.
Simplifying tax filing, especially for the salaried class, and restoring basic tax credits can be done in tandem with digitisation. Just as we invest in compliance, we must invest in transparency
So, with signs of stability, people now seek reforms rooted in the idea that if you stay in the system, the system should work for you. There needs to be a critical evaluation of the metrics of success that have traditionally been deployed during tax cycles. There is merit in chasing targets for tax base widening instead of the collection amount.
The Overseas Investors Chamber of Commerce and Industry (OICCI) has repeatedly addressed this issue. All sectors need to contribute in proportion to their size in the economy. Measures such as digitising tax records, using data analytics to identify non-filers and removing discretionary exemptions are imperative.
To the government’s credit, there have been encouraging efforts to move toward greater documentation. The incentives around digital payments, the expanding integration of NADRA, FBR and utility data, and sales tax benefits for card-based transactions all signal a shift in the right direction. But we now have a golden opportunity to take this even further.
Digitisation can be the great equaliser. With mobile wallets becoming mainstream, even small traders, freelancers and informal workers are increasingly operating in traceable, digital ecosystems. Pakistan has one of the fastest-growing digital payment landscapes in the region; this isn’t a challenge of infrastructure anymore but of intent and alignment.
We can build accurate taxpayer profiles without burdening citizens by linking CNICs to wallet transactions, utility bills, property records, and vehicle ownership. This data already exists. What’s needed now is to connect the dots and enforce them consistently, not sporadically. This isn’t about squeezing the informal sector; it’s about making joining the formal one easier and more beneficial.
Simplifying tax filing, especially for the salaried class, and restoring basic tax credits can be done in tandem with digitisation. Just as we invest in compliance, we must invest in transparency. An annual Taxpayer Report showing how revenues are spent on public services like education, health, infrastructure, and safety can help restore trust and answer the age-old question: “Where is my tax money going?”
Because at the heart of it, this isn’t just about tax, it’s about trust. It’s about making sure that those who do the right thing feel seen, respected and supported by the system.
The writer is the former president of OICCI and the chairman and CEO of Unilever Pakistan.
