Experts have warned that Pakistan could face a significant rise in poverty if urgent fiscal reforms are not introduced in the upcoming federal budget 2026-27. Speaking at a pre-budget policy dialogue organized by the Sustainable Development Policy Institute (SDPI), economists cautioned that up to 1.5 million additional people could fall below the poverty line under a worst-case scenario.
The dialogue, titled “Towards a Fair, Equitable, Broad-based Tax System,” brought together policymakers, economists, and tax experts to discuss the country’s economic challenges and policy priorities.
📉 Economic Pressures Mounting
SDPI Executive Director Dr Abid Qaiyum Suleri stressed the need for a fundamental shift toward progressive taxation to ensure sustainable growth and social protection. He emphasized that the upcoming budget presents a critical opportunity to expand the tax base, reduce exemptions, and limit reliance on indirect taxes, which disproportionately burden lower-income groups.
Meanwhile, SDPI Deputy Executive Director Dr Sajid Amin Javed projected GDP growth between 3.3% and 3.7% for the current fiscal year—lower than earlier estimates. He also noted that exports have declined by nearly $2 billion in the first nine months, while the current account deficit could widen to 2.8% of GDP.
Dr. Javed warned that rising global energy prices could increase Pakistan’s oil import bill by around $6 billion, potentially pushing inflation to 11–13% in the next fiscal year. “Under such conditions, between one and 1.5 million more people could fall into poverty,” he cautioned.
📊 Structural Issues in Tax System
Experts highlighted deep-rooted imbalances in Pakistan’s taxation system. Indirect taxes account for nearly 60% of total revenue, while withholding taxes make up about 55% of direct tax collection. Income tax contributions from the salaried class have surged significantly in recent years, raising concerns about fairness and equity.
Asif Rasool from the Federal Board of Revenue (FBR) emphasized the need for improved documentation of the economy. He called for better coordination between federal and provincial governments to expand the tax net through digitalization and enforcement.
🌍 Climate and Energy Challenges
SDPI Deputy Executive Director Dr Shafqat Munir highlighted the importance of integrating climate resilience into fiscal planning. Referring to the devastating 2022 floods that caused losses exceeding $30 billion, he said proactive investment in disaster preparedness could significantly reduce recovery costs.
Energy expert Dr Khalid Waleed pointed out that Pakistan’s reliance on imported fuels continues to expose the economy to external shocks. He recommended promoting renewable energy solutions such as rooftop solar systems and battery storage, alongside replacing untargeted fuel subsidies with direct support for vulnerable consumers.
🏭 Supporting SMEs and Reducing Inequality
SDPI Research Fellow Dr Irfan Chatha stressed the importance of supporting small and medium enterprises (SMEs), which play a key role in job creation and exports. He called for easier access to financing and simplified tax procedures to encourage formalization.
Experts also raised concerns over widening income inequality. The top 10% of the population controls nearly 55–60% of total income, while the top 1% holds more wealth than the bottom 50% combined.
📌 Policy Recommendations
Participants urged the government to prioritize:
• Expanding the tax base
• Rationalizing exemptions worth Rs443 billion
• Strengthening property and wealth taxation
• Supporting SMEs and exporters
• Integrating climate resilience into fiscal planning
🔍 Conclusion
The SDPI dialogue underscored the urgency of structural reforms to ensure inclusive and sustainable growth in Pakistan. With economic pressures mounting, experts believe that decisive policy action in the upcoming budget will be critical to preventing further poverty and stabilizing the economy.