Catch the untaxed & protected Huzaima Bukhari & Dr. Ikramul Haq Pakistan's fiscal crisis is not the consequence of insufficient taxation. It is the consequence of selective taxation. The country taxes documented income, organised business activity, electricity consumption, banking transactions and salaried employment with extraordinary intensity, but protects enormous pools of income/wealth that continue operating either outside the tax net altogether or under preferential and politically protected regimes. This contradiction lies at the heart of Pakistan's chronic revenue failure. Successive governments repeatedly claimed commitment to "broadening the tax base", but in practice the burden continued shifting toward those already documented and unable to conceal economic activity. Meanwhile, speculative wealth, informal trade, politically influential sectors and untaxed capital accumulation remained substantially untouched. Pakistan thus evolved into a peculiar fiscal state where taxation increasingly targets visibility rather than wealth. This structural imbalance has repeatedly been examined in numerous articles analysing the political economy of taxation, elite capture and fiscal federalism. The issue is not merely economic. It is deeply political and constitutional. A taxation system derives legitimacy from fairness. Citizens comply voluntarily only when they perceive that taxation corresponds with actual ability to pay and that privileged groups are not exempt from the collective fiscal burden. Once this principle collapses, the entire moral foundation of taxation weakens. That is precisely what happened in Pakistan. The salaried class became one of the most heavily taxed segments because taxes are deducted automatically at source. Organised businesses similarly became easy targets because they leave documentary trails. However, sectors characterised by political influence, fragmented documentation or cash-based operations continued contributing disproportionately little compared to visible wealth accumulation. The retail and wholesale sectors represent perhaps the clearest example. Despite constituting one of the largest segments of the economy, retail and wholesale trade continue contributing shockingly low levels of direct taxation. Every government announced retailer documentation schemes, point-of-sale integration and trader registration drives, yet most initiatives either collapsed politically or degenerated into negotiated settlements preserving informality. The state repeatedly chose compromise over reform. The problem, however, extends beyond traders alone. Pakistan's speculative real estate economy also remains substantially undertaxed relative to the scale of wealth accumulation it generates. Large volumes of untaxed capital moved historically into urban land, plots and speculative property markets because productive investment faced higher taxation and regulatory burdens than speculative gains. This distorted the entire economic structure. Instead of encouraging industrialisation, technological upgrading and export-oriented growth, fiscal policy indirectly incentivised speculative accumulation. Real estate became a preferred vehicle for parking untaxed wealth while manufacturing and documented business activity suffered under increasing compliance burdens. Agricultural income taxation presents another glaring contradiction. Pakistan remains one of the few major economies where large agricultural incomes continue escaping effective taxation despite constitutional and provincial authority to tax such income. Small farmers struggling for subsistence obviously deserve protection, but rich absentee landowners and vast commercial agricultural operations cannot permanently remain outside meaningful fiscal contribution while salaried classes and organised businesses shoulder expanding burdens. The issue here is not constitutional incapacity. It is political reluctance. Similarly, luxury consumption patterns visible across urban Pakistan expose the disconnect between actual wealth and declared income. Expensive vehicles, elite housing societies, lavish weddings, foreign travel and conspicuous consumption continue expanding despite persistently narrow direct tax declarations. This contradiction reflects not absence of taxable capacity but failure of political will and administrative design. The state possesses extensive transactional data through National Database & Registration Authority (NADRA), banking records, property registries, customs documentation, utility consumption and travel information. Yet these databases remain fragmented and underutilised because the existing taxation structure was never genuinely designed to confront entrenched wealth concentrations. Instead, the system evolved toward coercive extraction from compliant sectors. The irony is painful. Pakistan simultaneously imposes some of the harshest withholding and indirect tax burdens in the region while still failing to tax substantial wealth accumulation meaningfully. The result is economic distortion combined with fiscal insufficiency. This imbalance also explains declining trust in taxation itself. Citizens increasingly perceive the system as discriminatory because visible compliance attracts greater scrutiny while concealed wealth often enjoys negotiated protection. Tax amnesties repeatedly reinforced this perception by rewarding evasion and penalising honesty. Such policies weaken the very foundations of voluntary compliance. The solution, however, does not lie in punitive confiscatory taxation. Pakistan does not need an anti-business taxation regime. It requires a rational, broad-based and low-rate framework where all sectors contribute fairly according to actual economic capacity. The objective must be expansion of the base rather than endless escalation of rates. This distinction is critical. Excessively high tax rates imposed upon a narrow base inevitably encourage concealment, informality and capital flight. By contrast, moderate and predictable rates applied across a genuinely broad base strengthen compliance and economic growth simultaneously. The experience of successful economies confirms this repeatedly. Pakistan requires a structural shift in taxation philosophy. First, the retail and wholesale sectors must gradually enter the documented framework through simplified and harmonised taxation systems integrated with digital invoicing and upstream supply-chain monitoring. Harassment-based schemes repeatedly failed because they increased compliance costs without building trust. Second, speculative real estate gains should be taxed rationally while productive investment receives preferential encouragement. Third, provincial agricultural income taxation must finally move beyond symbolic legislation toward meaningful implementation targeting large commercial operations while protecting small farmers. Fourth, wealth indicators-including luxury consumption patterns, high-value transactions and unexplained asset accumulation-must become part of intelligent risk-based taxation systems. Fifth, taxation policy should reward productive activity rather than speculative accumulation. Equally important is integration of taxation with social legitimacy. Citizens will comply more willingly where they see taxation financing healthcare, education, infrastructure and social protection rather than elite privilege, wasteful expenditure and debt servicing. Sustainable taxation therefore requires reciprocal accountability between state and society. Pakistan's present model failed because it combined aggressive extraction with visible inequality. The consequences are now evident everywhere: shrinking formalisation, widening distrust, low investment and persistent fiscal fragility despite rising nominal revenues. This path is economically and politically unsustainable. The country cannot continue financing itself primarily through indirect taxation, withholding extraction and inflationary burdens imposed upon already documented sectors while untaxed wealth continues circulating through speculative and informal channels. A modern tax state cannot coexist indefinitely with protected privilege. The coming federal budget presents a fundamental choice. Pakistan can either continue protecting entrenched interests while squeezing compliant sectors further, or it can finally move toward genuine broad-based taxation rooted in fairness, constitutional legitimacy and economic rationality. Without confronting untaxed wealth and protected elites, every future tax reform will remain incomplete-and every revenue target will continue depending upon the same exhausted taxpayers already carrying the state upon their shoulders. _____________________________________________ Huzaima Bukhari, lawyer and author, is an Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Senior Visiting Fellow of Pakistan Institute of Development Economics (PIDE) 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.
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