KARACHI, April 29, 2025 — The State Bank of Pakistan (SBP) has strongly recommended that the government prioritize policies aimed at broadening the tax base and reducing the tax burden on salaried individuals and other documented sectors of the economy.
In its first half (H1) report for fiscal year 2024-25 on the state of Pakistan’s economy, the SBP stressed the urgent need for a fairer distribution of the tax burden to support sustainable growth.
The SBP noted that while the Federal Board of Revenue (FBR) recorded an improvement in tax collection during H1-FY25, it still fell short of its target. This shortfall occurred despite relatively favorable economic conditions, including falling interest rates, moderating inflation, and a stable exchange rate. In response, the government tightened its non-interest expenditures, notably reducing development spending and subsidies, in an attempt to meet fiscal consolidation goals.
However, the SBP cautioned that without structural reforms to expand the tax net, the burden would continue to disproportionately fall on the same segments—salaried employees, corporations, and other compliant taxpayers. The central bank emphasized that a continued heavy burden on these groups would not only dampen consumer and investment confidence but would also hinder the country’s broader development prospects.
Moreover, the SBP called for a rethinking of the current overreliance on indirect taxes, which tend to be regressive and exacerbate income inequality. The bank warned that in the absence of comprehensive reforms, the fiscal burden would increasingly lead to cuts in development expenditure, thereby undermining the economy’s long-term growth potential.
The report further highlighted Pakistan’s long-standing productivity challenges, identifying low and declining productivity as a major burden on the economy’s competitiveness. The SBP pointed out that Pakistan lags behind peer nations in terms of GDP per worker, a worrying trend that has contributed to recurring balance of payments crises and cyclical economic instability.
In its concluding remarks, the SBP urged policymakers to move beyond short-term fixes such as tax amnesties, excessive subsidies, and foreign debt-driven growth strategies. Instead, the focus should shift toward addressing deep-rooted structural issues that burden the economy and hinder productivity growth.