Dr. Ikramul Haq
Pakistan is controlled and ruled by ashrafiya (elites)—comprising indomitable military brass, top civil bureaucracy, higher judiciary, landed upper crust and their cronies in politics, industrialist-turned politicians, religious and so-called spiritual leaders (sic), media tycoons and their al-knowing (sic) anchors, and unscrupulous and powerful traders.
Flouting the rule of law with shameless impunity is the hallmark of Pakistani ashrafiya. The spoiled brats of ashrafiya join different nefarious circles, even organised mafia groups, for all kinds of unlawful and undesirable activities—for them vulgar ostentation of money and power is essential to prove that they are closely associated with the most powerful organ of the State.
In good old days, ashrafiya, respected as a class of nobles and highly revered, but in post-colonial Pakistan, this term represents the money-power-hungry classes posing as if the country is their personal jagir (property) and all their acts in utter violation of law are justified, as their inherent right.
The Finance Act 2025, approved by the National Assembly on June 26, 2025, presented by banker-turned Federal Finance Minister for Finance & Revenue, Muhammad Aurangzeb, amid traditional pandemonium in the Parliament on June 10, 2025, confirms how new unprecedented benefits have been secured by the ashrafiya and tax concessions already available to it are retained, while the common citizens are further overburdened with regressive taxes. The low-paid salaried employees have received insignificant tax relief, which is going to be be nullified by new environment support levy on petrol and diesel, enhanced petroleum levy and most insensitive federal excise duty of Rs. 10 on one-day-old chick!
Not a single tax exemption available to the rich and mighty in the Second Schedule to the Income Tax Ordinance, 2001 was proposed to be withdrawn to bridge the fiscal deficit of Rs. 6500 billion. On the contrary, the mindless borrowing from banks and elsewhere is to continue to push the nation in dark ‘debt prison’.
There is no inclination whatsoever in the budget 2025 to make Pakistan a self-reliant economy. On the contrary, it aims at securing further expensive loans, while the gross public debt of Rs. 76 trillion as on March 31, 2025 already reached an alarming and unsustainable level. This budget, as all earlier ones of successive governments, favours the rich and taxes the poor to the extent of extinction.
The economy of ashrafiya-controlled-Pakistan, undoubtedly, serves the interests of the privileged classes. The ruling classes, representing only 1% of entire population, own 95% of national resources. They exploit labour of landless tillers, poor urban workers and white-coloured to amass more and more wealth. They also create artificial and frequent price hikes of essential items to snatch back whatever little is earned or saved by 98% ordinary people.
The evolution of this kind of predatory and extractive State (The Land of the Pure) is elaborated in detail by former Governor of State Bank, Dr. Ishrat Hussain, in his book Pakistan: Economy of an Elitist State.
In this book, Dr. Ishrat has observed that in sharp contrast to the East Asian model of ‘shared growth’, based on rapid economic development coupled with a rapid reduction in poverty and more equitable distribution of the benefits of development in Pakistan, the elitist model confers political and economic powers to a small coterie of elite (parasites). This is the root cause of our economic ills and elitist budgets.
There are no two opinions that the ruling trio—mighty military complex and its civilian cronies, corrupt politicians and unscrupulous businessmen—imposes its will on members of parliament in all matters, including budgets and taxation. The entire budget making process at all levels is an epitome of apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—housing, transport, education and health, to say the least.
Even the Standing Committees on Finance & Taxation of both the Houses have never been informed what policies and tax measures would be contained in the budget. The Senator, Muhammad Aurangzeb even did not bother to give them any briefing before the presentation of his second budget.
The worthy members of National Assembly (MNAs) never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor of this Land of the Pure. Time and again, it has been emphasized that democracy is not electioneering per se.
Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation, which is only possible if the Parliament performs its Constitutional role, implements flawless process of accountability and ensures good governance. Theoretically, the Cabinet is answerable to the Parliament! However, the stark reality is that MNAs merely run after ministers for personal favours and gains.
The coalition government secured approval of Finance Bill 2025 ignoring suggestions and amendments by experts and Opposition members in Senate and National Assembly, disregarding all norms of parliamentary process and transparency, as it always happens.
The treasury benches in Parliament have once again proved nothing more than rubber stamps as far as formulation of budget and approving of tax measures by Federal Board of Revenue (FBR), on the dictates of International Monetary Fund (IMF), are concerned.
In every civilized and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in the parliament.
In Pakistan, the so-called elected governments always try to bypass parliamentary processes and then complain about lack of “democratic behaviour and culture” on the part of the Opposition. Every year, budget-making exercise is entrusted to bureaucrats sitting in the Ministry of Finance and FBR while the Parliament conveniently restricts its role to a silent approver.
Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances as their tax policies are narrowly based on collecting taxes at source, without bringing mighty sections of society within the tax net or collecting what is actually due from them.
Sole stress on indirect taxation [even under the garb of income taxation through presumptive tax regime on a number of transactions] without evaluating its impact on the economy and life of the poor masses is a serious cause for concern.
According to official figures, the contribution of income tax [although major portion of it is now composed of indirect levies or expenditure taxes] as percentage of GDP remains pathetically low; it was merely 1.9% in 2010-11, 2.2% in 2009-10, 2.6% in 2008-09, 2.9% in 2007-08, 3.0% in 2006-07, on average 3.5% from 2005-2006 to 2022-23, whereas in 2023-24 it went down to 3.15% [YEAR BOOKS 2010-11 to 2023-24 of FBR and annual Economic Surveys].
In the face of declining direct tax-to-GDP ratio, Muhammad Aurangzeb and FBR stalwarts are making tall claims about “impressive” (sic) increase in taxes that was directly the result of high inflation and rise in imports of petroleum products—the contribution of POL products in non-tax levy (in reality a tax) alone stood at 45% in the fiscal year 2023-24.
A brazen misrepresentation of figures is committed by the Ministry of Finance and FBR in Economic Survey 2024-25 and Budget documents. In fact, FBR has conveniently ignored the quantum of taxes collected at source on goods, contracts, supplies etc, being minimum and non-refundable, are in substance indirect levies, even in some cases, encroachment on the rights of provinces.
Reliance on indirect taxes that constitute 75% of total collection proves beyond any doubt that the tax system is emphatically contributing to rising poverty, as people who earn enormous income and possess immense wealth are not being subjected to income taxation in Pakistan. Thus, the very purpose of redistribution of wealth as the main object of taxation is being defeated and nullified in the Finance Act, 2025 and budget for the fiscal year 2025-26. The existing tax policies of the government are detrimental for economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer and vice versa.
The ability-to-pay principle is regarded as the most equitable and just method of taxation and emphasized upon primarily for its redistributive role. In Pakistan, our successive governments, civil and military alike, have completely deviated from this principle, which is in fact, a constitutional obligation of the government.
The existing tax system protects the establishment and exploitative elements that have complete monopoly over economic resources. There is no political will to tax the privileged classes—the total income tax expenditure for the fiscal year ending June 30, 2024 was Rs. 542 billion as compared to Rs. 477 billion in 2023.
The impact of zero-rating of sales tax of Rs. 1795.764 billion on import and local supplies petroleum products to deny the constitutional right to provinces to get share of 57.5% in its collection under the National Finance Commission Award has also been deleted from Tax Expenditure [Appendix II of Economic Survey 2024-25], which is totally unjustified. The provinces must demand their share based on this figure, as Federal Government’s act of issuance of Statutory Regulator Orders (SROs) of zero rating was the blatant violation of the Constitution.
The federal government in lieu of sales tax on petroleum products collected petroleum levy (a so-called non-tax item) of Rs. 833.847 billion until March 30, 2025 and estimation of collection until June 30, 2025 is Rs 1161 billion. It shows loss in collection—in this way not only gross violation of the Constitution was committed, provinces were deprived of legitimate share of Rs. 1136 billion, but also state kitty lost Rs. 635 billion.
Pakistan has been facing a variety of crises specifically in areas of: resources for its developmental policies, meeting trade deficits, fiscal deficits and balance of payments, in addition to numerous others. One of the factors responsible for the present situation is the accelerating speed with which black money is being generated.
FBR is directly responsible for this phenomenon as its mafia-like operations has helped the people to avoid tax on incomes by paying it “due share”. Through the infamous system of SROs, FBR’s top officials also provide “legal” ways and means to mighty sections of the society (ashrafiya) to amass huge wealth that is now threatening the State’s very survival.
The common citizens are subjected to exorbitant sales tax and federal excise duty on certain items as well as income tax collection at source. Tax incidence on finished imported goods and many other items is from 35% to 55%, after applicable customs duty, sales tax, federal excise, mandatory value addition and income tax. On essential eatable commodities [even salt sold under brand names is subjected to 18% sales tax] this is disastrous. However, the mighty sections of society such as generals, judges, and high-raking bureaucrats, getting plots from the State, are not paying any wealth tax/income tax on their colossal assets/incomes. The same is the case with big industrialists and landed classes that get concessions and exemption through SROs.
Tax policy must be used as tool for rapid industrialization and creation of job opportunities and not an instrument of fleecing the masses to decrease fiscal deficit. It is imperative to tax the unproductive sectors to divert money to productive sectors and ensure redistributive charter of tax system—taxing the rich for the benefit of the poor. At present, we are taxing the poor for the benefit of the rich, as proved by the Finance Act, 2025. This trend needs to be reversed before it is too late.
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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.