https://ift.tt/07X5lFo

Pakistan’s official tax discourse is mostly structured around a single question: how to collect more revenue. This narrow obsession with short-term revenue targets has produced a deeply distorted tax system that undermines growth, penalises documentation and increasingly shifts the burden onto those who are already visible, compliant and easy to tax.

Instead of broadening the tax base through structural reform, successive governments have relied on incremental, often distortionary measures, such as higher rates, additional levies, withholding taxes, and temporary surcharges, to squeeze immediate revenue from the formal economy.

Inevitably, the result is a regressive tax structure where compliant firms, salaried individuals and documented businesses shoulder a disproportionate burden while politically protected and informal sectors, including agriculture, retail, real estate and large parts of the services sector, remain lightly taxed despite their substantial contribution to GDP.

This imbalance is not accidental. It reflects deeper political economy distortions in which the state taxes what it can easily monitor rather than what it should tax. Weak enforcement capacity, fragmented administration and elite capture have allowed large sectors of the economy to remain under-taxed while the burden on documented taxpayers continues to intensify.

Lower, simpler taxes, with broader documentation, could generate stronger long-term revenues

The result is a vicious cycle. Higher tax rates encourage informality, while informality narrows the effective tax base further, forcing authorities to extract even more from existing taxpayers. Consequently, revenue extraction has replaced actual tax reform.

Pakistan’s sales tax regime has evolved into another example of how poorly designed taxation creates distortions not only for businesses but also for consumers. The ongoing debate around expanding the Third Schedule of the Sales Tax Act 1990 offers an important illustration of this problem.

The government is reportedly considering bringing more fast-moving consumer goods under the Third Schedule, where sales tax is charged based on the printed maximum retail price rather than through the conventional value-added system. Products such as cooking oil, dairy items, flour, frozen foods, tea whiteners and infant formula are expected to be added to the list after authorities observe stronger revenue performance from items like coffee already included under the regime.

Under the Third Schedule, tax is collected upfront at the manufacturing or import stage based on the printed retail price, reducing opportunities for under-invoicing and leakage further down the supply chain. For tax authorities struggling with an overwhelmingly undocumented retail sector, this offers predictability and administrative simplicity. But the significance of the issue extends beyond revenue collection.

The current sales tax system exposes a deeper structural flaw in Pakistan’s approach to taxation: consumers themselves remain largely invisible in policy design. Under the standard value-added sales tax framework, many everyday products do not carry clearly printed retail prices.

In an economy where a large majority of retailers operate informally and outside effective regulatory oversight, this creates significant room for arbitrary pricing and overcharging. Consumers frequently purchase essential items without knowing the actual intended retail price or whether excessive markups have been added at the retail stage.

In practice, this means consumers bear the burden of a dysfunctional tax and distribution system without even receiving basic price transparency in return. The Third Schedule addresses this issue by requiring retail prices to be printed directly on packaging. While designed primarily as a tax administration tool, it inadvertently introduces an important consumer protection mechanism.

A visible printed price reduces informational asymmetry between retailer and buyer, limits arbitrary markups and creates greater transparency at the point of sale. This matters particularly in the case of food and milk-related products, where frequent price changes directly affect household budgets already under severe pressure from inflation and stagnant incomes.

The irony is that Pakistan’s tax system often imposes substantial burdens on documented manufacturers while failing to protect either compliant businesses or consumers. Similarly, weak enforcement allows large wholesale and retail markets to remain outside the tax net, while compliant firms face increasing compliance costs, delayed refunds and multiple layers of taxation. As such, formal businesses absorb the cost of compliance, consumers face opaque pricing, and informal sectors continue operating with minimal accountability.

A sustainable tax system should not merely maximise extraction from documented sectors. It should promote fairness, simplicity, transparency and economic expansion. Excessive complexity discourages documentation, weakens compliance incentives and undermines public trust in the fiscal system.

The proposals put forward by the Overseas Investors Chamber of Commerce and Industry recently to simplify taxes, lower rates, and rationalise the sales tax regime reflect recognition that Pakistan’s current framework is economically unsustainable. Lower, simpler taxes, combined with broader documentation, can potentially generate stronger long-term revenues than increasingly punitive rates imposed on a shrinking compliant base.

Equally important, tax policy must begin recognising consumers as stakeholders rather than passive revenue sources.

Published in Dawn, The Business and Finance Weekly, May 11th, 2026

from Dawn - Home https://ift.tt/eKjPzNo

https://ift.tt/hgCENcP

ISLAMABAD: The government is considering reducing the income tax burden on salaried individuals while refraining from increasing salaries and pensions in the upcoming budget, aiming to provide equitable fiscal relief to both public and private sector employees.

Informed sources told Dawn that Finance Minister Muhammad Aurangzeb has expressed a desire to lower tax rates and, if possible, raise the taxable income threshold for the salaried class in recognition of their significant contribution to revenue generation compared to retailers, wholesalers, exporters, and real estate players.

On the other hand, the government may keep salaries and pensions uncha­nged at current levels, using the resulting fiscal savings to provide tax relief instead. “There is no reason to increase salaries if it pushes employees into hig­her taxable income brackets, leaving government employees with little to no increase in take-home pay,” an official said. He added that with lower tax rates and higher taxable income thresholds, government employees would remain net beneficiaries even without a salary increase. “Gov­ernment employees would not be worse off financially. That is neither the idea nor the intention,” he said.

Government salaries have increased by more than 60 per cent over the past four years, while private sector wages have generally stagnated amid high inflation and lower economic growth. The official said the tax policy office and some independent consultancy firms were working on various proposals to be discussed with the IMF mission during budget consultations beginning on May 15.

During this fiscal year, salaried class paid more than double the real estate taxes; even higher than the combined revenue from wholesalers, retailers and exporters

In addition, the development programme may be reduced further to a skeleton allocation, although final decisions on income tax, salaries, and development spending will become clearer during discussions with the IMF.

Last year, the federal government incurred an additional burden of more than Rs170 billion due to increases in salaries and pensions, while the provincial impact was more than double. An official noted even part of this amount could significantly reduce personal income tax burden.

The salaried class reportedly paid more than Rs425bn in taxes during the first three quarters of the current fiscal year — more than double the real estate sector’s contribution of about Rs200bn, and significantly higher than the combined revenue from wholesalers, retailers, and exporters. The salaried class has not only contributed the largest share of revenue but has also faced rising household expenses due to inflation, particularly after the onset of the Middle East crisis.

However, the official clarified that salary increases for PSDP-related employees, already notified by the government last month, would remain protected. After a four-year gap, the government last month approved a 20 to 35pc increase in the minimum salaries of employees working on development projects funded through the Public Sector Development Programme (PSDP), effective from July 1, 2026. Their pay packages were last revised on April 1, 2022.

Unlike other government employees, PSDP project employees previously faced cuts of up to 28pc in annual increments and 14pc in maximum salaries, according to an office memorandum issued by the finance ministry. During the same period, salaries of all other government employees, including those in finance ministry, increased by more than 60pc.

Published in Dawn, May 11th, 2026

from Dawn - Home https://ift.tt/8Fl2Cfy

https://ift.tt/wAgbdml

Indian Prime Minister Narendra Modi on Sunday urged the people of to cut down on petrol and diesel consumption amid supply disruptions due to the Middle East war.

India is one of the few countries in the region that has not increased the prices of petrol and diesel for domestic consumers or rationed supplies.

But it has increased prices of liquefied petroleum gas (LPG) — a primary cooking fuel in this country — after disruptions following the US-Israeli strikes on Iran, which led to Iran’s near-total blockade of the strategic Strait of Hormuz.

“We have to reduce our use of petrol and diesel. In cities with metro lines, we should try to travel by metro … If we must use a car, then we should try to car pool,” he said, addressing a gathering in southern Telangana state.

He added that restrictions on use were also necessary to save foreign currency spent on fuel imports.

“We must also place a strong emphasis on saving foreign exchange, as petrol and diesel have become so expensive globally.”

Modi also urged people to resume energy-saving schemes that were in place during the Covid-19 pandemic.

“We should prioritise work from home, online conferences, and virtual meetings again,” he said.

from Dawn - Home https://ift.tt/e7Iks2N

https://ift.tt/YtXO5hW

• Pakistan-India ties still trapped by Delhi’s intransigence, US failure to create political process after ceasefire
• Islamabad’s institutional coherence shattered New Delhi’s illusions it was dealing with ‘weak neighbour’
• Water war takes centre stage as Indus treaty remains ‘unilaterally held in abeyance’

THE fighting lasted barely 90 hours, but the political consequences have proved far more durable.

While neither India nor Pakistan got what they expected from the flare-up of 2025, very few could have predicted that less than a year later, it would be Pakistan that emerged as the diplomatic lynchpin in the region, while India remained relegated to the side-lines.

Today, the relationship between the two neighbours remains frozen in an unusually rigid state; there is no war, but there is no diplomacy worth the name, either. The border is shut, trade is suspended and the Indus Waters Treaty remains unilaterally held in abeyance by New Delhi.

Military hotlines between the two countries are functioning, but they are emergency mechanisms rather than channels of engagement.

The resulting situation is not that of stability in the conventional sense, but a colder equilibrium sustained by deterrence, mistrust and the absence of political alternatives.

At the time the US facilitated ceasefire was announced, there was an understanding — at least according to US Secretary of State Marco Rubio’s announcement — that military de-escalation would be followed by talks at a neutral venue.

The US role for crisis management had been unusually visible and President Donald Trump publicly claimed credit for helping secure the ceasefire. So, there was a strong hope for a structured engagement between the two sides when the conflict ended.

But that process never materialised; India quickly rejected any suggestion of external mediation and insisted that the ceasefire understanding emerged through direct communication at the level of the two directors general of military operations.

It did so because New Delhi had long opposed internationalisation of the Kashmir dispute, and Trump’s public handling of the episode caused disquiet in Indian official circles.

Pakistan, meanwhile, believed that the conflict had restored a measure of strategic balance and that the post-war environment would generate a diplomatic momentum leading to improvement in the relationship and some semblance of normalisation.

But things did not turn out that way, mostly because Washington — after helping stop the fighting — had not invested sustained diplomatic capital in building a political framework around the ceasefire.

The impression left behind was that the US could help stop wars in South Asia, but may no longer possess either the leverage or the appetite to sustain a structured peace process afterwards.

India’s loss, Pakistan’s gain

Indian resistance to any formal mediatory role, meanwhile, further weakened the possibility of follow up diplomacy.

Besides Delhi’s refusal to accept any external mediation on the Kashmir dispute, Indian strategic thinking before May 2025 viewed Pakistan as a state weakened by internal instability, economic distress and persistent terrorist violence.

Therefore, the widening asymmetry in economic size, diplomatic influence and military modernisation encouraged a belief that India no longer needed engagement with Pakistan, and could manage the relationship through pressure, coercive signalling and diplomatic isolation instead.

The conflict, especially the way it ended, complicated that assumption.

Pakistan, to the surprise of many, demonstrated a great degree of institutional coherence during the crisis, absorbing military pressure, maintaining escalation control and mounting a coordinated response involving drones, missiles and air power. The conflict produced a narrative that Pakistan was strategically resilient, despite its internal difficulties.

Equally important, the crisis restored Pakistan’s geopolitical relevance. US engagement intensified during the conflict; China, Turkiye and Iran publicly backed Islamabad diplomatically and Gulf states quietly remained involved in de-escalation efforts.

Islamabad then went on to use the post-war period to improve its diplomatic visibility, particularly as regional tensions surrounding Iran later increased international interest in Islamabad’s intermediary role.

But none of this fundamentally altered the broader asymmetry between India and Pakistan. India still retains overwhelming long term advantages in economic weight and global positioning, but the conflict shattered the assumption, both in Delhi and around the world, that Pakistan had become “strategically irrelevant”.

An Indian military analyst, who has a good understanding of the Modi government’s thinking on foreign policy and security matters, told Dawn, “India is still operating on the assumption that that the asymmetry continues to favour it, though some important lessons were learnt from the conflict.”

Policymakers, he said, continue to believe that long-term geopolitical and economic trends remain firmly in India’s favour.

That explanation sums up the prevailing situation, where even after strategic recalibration, India has shown little interest in re-engagement with Pakistan.

Lack of engagement

Part of the reason for the India intransigence lies in its domestic politics, where engagement with Pakistan carries political costs.

In this situation, India prefers crisis management over structured dialogue.

Dr Moeed Yusuf, a former national security adviser, believes the present arrangement cannot hold indefinitely. “It is only sustainable till you don’t have the next crisis,” he said, arguing that the absence of political engagement leaves both sides vulnerable to another sudden confrontation.

He said India’s domestic political environment and years of anti-Pakistan narratives had narrowed the space for reconciliation, adding that while improving ties was essential for regional development, he was “not at all optimistic at this point”.

Moreover, the issue of unfounded terrorism allegations also remains central to that paralysis. India keeps the terrorism bogey alive and continues to maintain that meaningful improvement in relations is difficult without addressing its “concerns”.

Pakistan rightfully rejects those accusations, of which India has failed to provide any evidence, and argues that it has itself paid a heavy price over the past two decades in fighting militancy and terrorism.

Islamabad’s consistent position has been that sustained dialogue remains necessary precisely because of these disputes and risks. But the Indian hard line on the issue has narrowed the diplomatic space even further after the May 2025 conflict demonstrated how quickly such incidents can trigger wider military escalation.

In the absence of formal diplomacy, unofficial channels have continued to function quietly.

Over the past year, there have been periodic reports of Track 1.5 and Track 2 interactions involving retired officials, academics and policy interlocutors in places such as London, Muscat, Doha and Bangkok. These contacts have limited utility, but preserve communication during periods of estrangement and allow both sides to quietly test ideas and assess intentions.

After Kashmir, water becomes new front

Meanwhile, an important shift has quietly taken place in the substance of the bilateral dispute itself.

Kashmir remains unresolved and politically central, but has receded from active diplomacy after the conflict. In its place, water security has emerged as perhaps the most immediate and dangerous point of friction.

India’s decision to place the Indus Waters Treaty in abeyance marked a significant departure from past practice, since the treaty had survived nearly all previous wars and crises. Pakistan viewed the move as the “weaponisation of water” and warned that interference with the Indus system threatens millions dependent on agriculture, irrigation and hydropower.

Climate pressures and long term water insecurity have made the issue even more sensitive.

Former Federal Flood Commission chairman Ahmed Kamal said Pakistan had recently raised concerns with India over reduced flows in the Chenab. “Future cooperation on water security issue rests with India and would be determined by how it responds to Pakistan’s concern,” he said recalling that Pakistan’s commissioner for Indus waters recently took up the matter with India.

Ironically, however, water may also become one of the few issues capable of forcing limited engagement in the future. Even governments unwilling to resume broader political dialogue may eventually find it difficult to indefinitely avoid technical coordination over river flows, treaty obligations and data-sharing mechanisms.

While the space for comprehensive dialogue currently appears unlikely, narrower and more technical contacts involving water management, ceasefire stabilisation, crisis communication, humanitarian issues and limited security understandings may still be possible.

Outside actors including the US, Gulf states or European governments could potentially facilitate such engagement quietly with-out formally mediating the broader dispute.

None of this would resolve the underlying political conflict, but may help reduce the risk of another uncontrolled crisis in a region where trust has sharply eroded.

Published in Dawn, May 10th, 2026

from Dawn - Home https://ift.tt/lnMCQ7X

https://ift.tt/rKoQJDA

Minister for Finance and Revenue Senator Muhammad Aurangzeb on Saturday said Pakistan’s economy continued to show signs of recovery despite ongoing regional tensions, citing strong growth in large-scale manufacturing, exports, remittances and foreign investment inflows.

Addressing a news conference alongside Minister for Petroleum Ali Pervaiz Malik, the finance minister said the country’s large-scale manufacturing (LSM) sector recorded 11 per cent year-on-year growth in April, while cumulative growth during the first nine months of the current fiscal year stood at 6.5pc.

He said the government expected the GDP growth rate to remain close to 4pc during the current fiscal year, compared to 3.1pc last year.

Exports have grown by 9pc month-on-month and 14pc year-on-year, driven by value-added textiles, IT and other sectors, he said, adding that the export growth was broad-based.

Highlighting overseas inflows, Aurangzeb said remittances reached $3.5 billion in April after touching $3.8bn in March during Ramazan, describing the sustained inflows as a strong vote of confidence from overseas Pakistanis.

The finance czar added that inflows under the Roshan Digital Account (RDA) also rose sharply to $320 million in April, the highest monthly volume in the scheme’s history.

“This is an investment-led discussion. Overseas Pakistanis are investing in New Pakistan Certificates, real estate and the stock market,” he remarked.

The minister further said Pakistan had re-entered international capital markets after four years and recently raised $750 million through a Eurobond issuance despite the ongoing regional conflict.

He added that Pakistan was set to access Chinese capital markets for the first time through a Panda Bond next week. “Next week you will hear good news that, for the first time, we will be accessing Chinese capital markets through a Panda Bond,” he said.

The finance minister further said the country’s foreign exchange reserves were projected to reach a level equivalent to around three months of import cover by the end of June.

He also said macroeconomic stability was intended to ensure industrial continuity, facilitate the opening of letters of credit and the repatriation of profits and dividends, and generate employment opportunities.

Commending the Petroleum Ministry for maintaining uninterrupted fuel supplies over the past two months, the finance minister said no shortages or supply chain disruptions had occurred in the country despite challenges across the region.

“There have been shortages and long queues in different countries, but nothing of that sort happened in Pakistan,” he said, appreciating the efforts of the petroleum minister and his team.

Referring to recent fuel price adjustments, Aurangzeb said the government had continued targeted subsidies for vulnerable segments, including motorcyclists, public transport users and small farmers, in consultation with provincial governments.

He said the subsidies had now been extended into the third month at the direction of the prime minister and chief ministers to provide relief to weaker sections of society.

The finance minister, however, cautioned that Pakistan’s oil import bill had increased by over $1 billion between March and April, urging the public to exercise restraint in energy consumption to protect the external account position.

“Our external account is equally important. We all need to be careful in our consumption patterns,” he said.

Aurangzeb said Pakistan remained committed to fulfilling all international financial obligations with bilateral and multilateral partners as a responsible country.

He also expressed hope that the regional conflict would end soon, warning that damage to regional energy infrastructure could take months to recover even after hostilities ceased.

“We are monitoring the possible impact on inflation, GDP growth, remittances and exports because hope alone is not a strategy,” he remarked.

from Dawn - Home https://ift.tt/vLjpc8K

https://ift.tt/W0LDKpb

WASHINGTON: Pakistan has significantly expanded its lobbying and strategic communications footprint in the United States, signing a new $1.2 million contract with a Washington-based advisory firm as it seeks deeper engagement on defence cooperation, critical minerals and broader economic diplomacy in an increasingly competitive policy environment.

According to filings submitted under the US Foreign Agents Registration Act (FARA), Ervin Graves Strategy Group LLC registered on May 1 as an official foreign agent of Pakistan’s embassy in Washington under a two-year contract valued at $1.2m, requiring payments of $50,000 per month for its services.

FARA requires the public listing of all lobbyists or lobbying firms working for a foreign entity, including governments and private corporations.

The agreement tasks the firm with a wide-ranging mandate that includes lobbying US policymakers, government-relations work, legislative monitoring, stakeholder engagement, media messaging, think tank outreach, and policy advisory support.

More notably, the contract explicitly extends into areas of strategic economic and security interest, including trade and investment promotion, critical minerals cooperation, and defence and security engagement — sectors that have gained renewed importance in US foreign policy thinking amid global supply-chain realignments and intensifying great-power competition.

The arrangement reflects Islamabad’s effort to reposition its Washington outreach beyond traditional diplomatic messaging, placing greater emphasis on sector-specific engagement and structured access to US policy networks.

In Washington, such contracts are increasingly viewed as part of a broader ecosystem of influence-building, where governments rely on specialised advisory firms, former officials and policy intermediaries to shape perceptions across Congress, the executive branch, think tanks and the media.

When asked why Pakistan needs to hire lobbyists in Washington despite having an embassy, a Pakistan Embassy official said: “Countries have been hiring lobbyists in Washington since 1938. This is how the American system works. They expect you to work with and within the system. Registering under FARA ensures transparency.”

Pakistan’s latest engagement comes as its lobbying strategy in the US capital has evolved into a more layered and diversified structure in recent years, combining embassy-driven diplomacy with external advisory networks.

Earlier FARA filings show that Islamabad and affiliated organisations have engaged multiple US-based firms to manage legislative outreach, public messaging and policy engagement efforts, particularly around bilateral relations and economic cooperation.

The latest contract also underscores a shift in emphasis toward economic security themes — particularly critical minerals — which have become central to US strategic policy as Washington seeks to diversify supply chains away from China and secure access to inputs essential for defence manufacturing, renewable energy technologies and semiconductor production.

Defence and security cooperation, another key component of the agreement, reflects Pakistan’s longstanding objective of maintaining institutional channels with US security and policy establishments, even during periods of political strain in bilateral relations.

Pakistan’s lobbying push is taking place in a broader and increasingly competitive foreign influence environment in Washington, where multiple countries have intensified their engagement strategies.

India, in particular, has maintained an active and highly structured lobbying presence in the US, often leveraging former political advisers and communications strategists to shape congressional and media narratives on South Asia and regional security.

Following the Pahalgam attack in India-occupied Kashmir in April 2025, both India and Pakistan further expanded their use of Washington-based consultants linked to the Trump administration’s political circles, underscoring the extent to which South Asian diplomacy in the US has become closely tied to political consulting networks.

In this evolving environment, Pakistan’s latest $1.2m engagement signals an effort to consolidate and professionalise its Washington strategy — moving toward a more targeted approach that integrates defence, economic diplomacy and policy messaging under a single advisory framework.

While FARA filings provide transparency into contractual relationships, they also reflect a deeper structural reality in Washington: that foreign policy influence is increasingly mediated through private consultancies, former officials and specialised lobbying networks, rather than traditional diplomatic channels alone.

For Pakistan, the challenge remains not only access to policymakers, but sustained narrative presence in a crowded and politically polarised Washington ecosystem where multiple regional conflicts and strategic priorities compete for attention.

from Dawn - Home https://ift.tt/UvMuxwI

https://ift.tt/N7yPsDW

Security forces killed five terrorists in two separate engagements in Khyber Pakhtunkhwa’s Tank and Dera Ismail Khan districts, said the Inter-Services Public Relations (ISPR) on Friday.

In Tank district, an intelligence-based operation was conducted on the reported presence of khwarij.

“During conduct of the operation, own troops effectively engaged khwarij location and after intense exchange of fire, four khwarij, belonging to Indian-sponsored Fitna-al-Khwarij were sent to hell,” said the military media wing.

Fitna al Khawarij is a term the state uses for terrorists belonging to the banned Tehreek-i-Taliban Pakistan.

In another IBO conducted in DI Khan district, a terrorist was killed during a firefight with security forces.

The ISPR said the IBOs were conducted on May 7-8.

“Weapons and ammunition have also been recovered from killed Indian sponsored khwarij, who remained actively involved in numerous terrorist activities in the area.”

A sanitisation operation is being conducted to eliminate any other khawarij found in the area, the ISPR statement added.

The country’s “relentless” counter terrorism campaign under vision ‘Azm-i-Istekham’ “will continue at full pace to wipe out the menace of foreign-sponsored and supported terrorism from the country,” said the ISPR, adding that the sacrifice of innocent civilians further strengthened resolve.

There has been a resurgence in terrorism in Pakistan since the Afghan Taliban returned to power in Kabul in 2021.

Islamabad has repeatedly urged the Taliban administration to dismantle terrorist sanctuaries on Afghan soil, particularly those linked to the banned TTP. Officials say those appeals have gone unheeded.

from Dawn - Home https://ift.tt/W3QkZOs