Huzaima Bukhari & Dr. Ikramul Haq
“We don’t do charity in Germany. We pay taxes. Charity is a failure of governments’ responsibilities”—Henning When, a German stand-up comedian
In Pakistan, the successive governments have always been very keen to enhance tax revenues, especially collection by Federal Board of Revenue (FBR), but never talk about the real problem that is huge tax expenditure and monstrous size of unproductive expenses—in case these two are reduced even by 30%, Pakistan can substantially decrease fiscal deficit—nearly 40-50%.
The enormous cost of unprecedented tax-free perquisites and benefits available to high-ranking state functionaries cost loss of billions of rupees to the national exchequer. Tax exemptions and concessions of Rs. 120 billion were given to the top civil and military officers and judges of superior courts on perks and benefits in the fiscal year 2024-25, and first three months of the current fiscal years. In the face of this reality, we keep on hearing from every government that it is cutting “unproductive” expenses and withdrawing tax concessions to improve fiscal management.
The FBR in ‘Executive Summary’ of latest Tax Expenditure Report 2025 says: “Tax expenditures refer to specific provisions within the tax laws—such as exclusions, deductions, deferrals, tax credits, and reduced tax rates—that are designed to support certain economic activities or benefit specific groups of taxpayers. These provisions effectively result in a loss of potential government revenue. Tax expenditures are typically quantified as estimates of revenue foregone due to such special measures in the tax code”.
The 2025 Report reveals that out of total tax expenditure of Rs. 2435 billion in tax year 2024 [26.18 % of total collection in fiscal year (FY) 2023], sales tax was the highest at Rs. 1237 billion (50.18% of total expenditure and 1.18% of GDP). The income tax was estimated at Rs. 545 billion (22.39% of total expenditure and 0.52% of GDP). Customs was Rs. 652 billion (14% of total expenditure and 0.65% of GDP).
The Tax Expenditure Report for 2025 shows zero amount of loss on account of waiving standard rate of sales tax of Rs. 18% on local supplies and import of petroleum products, whereas for the immediately preceding year, the figure for these was Rs. 875 billion and Rs. 513 billion respectively. The deliberate understatement of tax expenditure of Rs. 1795.76 billion remains unnoticed by the experts (sic) and so-called vigilantes (sic) of the International Monetary Funds (IMF). The actual tax expenditure for FY 2023 was Rs. 4231 billion!
The impact of zero-rating sales tax—amounting to Rs. 1,795.764 billion on the import and local supply of petroleum products—has also been omitted from the Tax Expenditure appendix of the Economic Survey 2024–25. This confirms depriving the provinces of their constitutional right of 57.5% share under the National Finance Commission Award. The federal government’s issuance of Statutory Regulatory Orders (SROs) granting zero-rating is a blatant constitutional violation. In lieu of sales tax on petroleum products, the federal government collected petroleum levy (a so-called non-tax revenue) of Rs. 1220 billion until 30 June 2025. This not only represents a loss in collection and a constitutional breach, but also deprived the provinces of their share of Rs. 1,136 billion, while the state treasury lost Rs. 576 billion due to difference in foregoing sales tax of Rs. 1796 billion and collection of petroleum levy of Rs. 1120 billion.
The Tax Expenditure Report 2024 report revealed that out of total tax expenditure of Rs. 3879 billion in tax year 2023 [54.15 % of total collection in fiscal year (FY) 2023], sales tax was the highest at Rs. 2858.7 billion (73.7% of total expenditure and 3.4% of GDP). The income tax was estimated at Rs. 477 billion (12.3% of total expenditure and 0.57% of GDP). Customs was Rs. 652 billion (7.02% of total expenditure and 0.62% of GDP).
Somebody has rightly raised a vital issue: “Why debate on tax target and collection alone in media and elsewhere, and not mention tax forgone of the rich and mighty enjoying facilities of resorts, golf clubs, rest houses, palatial bungalows and other unprecedented perks and benefits etc.?”
Instead of blaming FBR’s officials alone for inefficiency, the successive governments must admit lack of will to reduce exemptions, concessions, waivers and amnesties to powerful segments of society. If only 40% of taxes waived/forgone in FY 2025 were recouped in Finance Act 2025, there would have been a fiscal space of Rs. 1600 billion to reduce taxes.
However, the incumbent Government, like its predecessors, showed apathy towards the salaried class, weaker sections of society and small and medium enterprises (SMEs), facing the unbearable tax toll. It failed to reduce exorbitant income tax, super tax, sales tax, withholding taxes, advance tax, and high cost of utilities as well as oppressive 15% advance income tax from mobile users, no matter whatever their quantum of income.
Taxes are the backbone of a country’s economy as these help to meet day-to-day expenses for running the government’s machinery, which in our case needs rightsizing and reforms to be efficient). Funds are also required for developmental projects, for maintaining the profitability equilibrium of commercial enterprises to discourage monopolies and create a level playing field for all types of entrepreneurs, to enable equitable distribution of wealth so that the rich do not get richer and the poor, poorer. The generous tax exemptions, concessions, waivers and amnesties, especially to privileged ones and tax evaders/avoiders must end as these are destroying the entire fiscal system and retarding business growth/investment.
Democratic governments are not supposed to snatch or steal from the citizens nor are they supposed to intervene in their private/commercial affairs. Governments facilitate and regulate, of course with the help of their people to improve their lot and contribute towards national prosperity by paying taxes. The idea that charity can help alleviate suffering and relieve the poor is quite preposterous since it relies on the whims and discretion of the donor.
Take the case of micro financing. A little amount of money is given as loan to run a very small business that barely allows a person to make his ends meet. This implies that a few hundred thousand will always remain at a marginal low level of income with hardly any chance of reaching a bigger scale. Contrary to that, setting up an industrial unit and taking on board as shareholders those very borrowers can not only enrich their lives but even those who would be associated with that concern and this would also mean better growth as well as more revenue in the form of taxes for the country.
A quote from the biography of Britain’s one time prime minister (1945-1951) Clement Attlee is quite thought provoking. He says: “Charity is a cold, grey, loveless thing. If a man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim.”
In Pakistan, while the government pleads its people to pay their taxes honestly, there is no dearth of philanthropists. Consequently, during the periods of economic crises, our successive governments have resorted to beseeching the super-rich to donate towards a special relief funds established for this purpose. This is the height of any irresponsible government that persistently fails in performing its functions efficiently! Wryly, most of the proud donors in the past who appeared publically promising heavy amounts of money were ones who engaged expensive consultants to ‘legally’ arrange their financial matters in such a way that they were subjected to minimum possible taxes.
According to Owen Jones, a Guardian columnist, “Philanthropy is a dangerous substitution for progressive taxation.” Rather than adding billions to the funds of a few non-governmental organizations that could be addressing problems of a miniscule percentage of people, the government treasury needs to be filled up substantially to be used for the vast majority and more specifically during emergency situations. This would, however, mean that those who want to cultivate close relations with the men in power by making their presence conspicuous through donations would become lost in the multitude of taxpayers.
There is a need to understand that charity, despite being a noble act has limited value. We may have been indoctrinated to believe that by giving alms, we will earn a high place in heaven but this must come after absolving ourselves of our national duty. The former cannot take precedence over the latter. A dishonest citizen who cheats the authorities but doles out large sums of money in charity cannot be forgiven in the same way as the government that fails to efficiently utilize taxes paid by the honest.
Repeatedly, people justify tax evasion as a means to avoid enriching a corrupt and incompetent government taking the plea that what authorities cannot do; they could do in the name of charity. This mindset has to change! Empower the government, to such a degree that it is able to reach every nook and cranny of the country and ably fulfill its obligations to the people. Make the government transparent and responsible through participatory democracy [known in political economy as ‘open government’]. Only this transformed attitude can turn around the destiny of any country, let alone Pakistan. _______________________________________________________________________
Ms. Huzaima Bukhari, MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), is author of numerous books and articles on Pakistani tax laws.
She is editor of Taxation and partner of Huzaima & Ikram, leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specializes in the areas of international tax laws, ML/CFT related laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals.
She regularly writes columns/articles/papers for Pakistani newspapers and international journals. She has so far contributed more than 3000 articles and research papers on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner.
He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 3500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.