Pakistan urged to adopt structural tax and growth reforms in FY27 budget

As preparations begin for Pakistan’s federal budget for fiscal year 2026–27, economists and policy analysts are calling for deep structural reforms to shift the country away from short-term fiscal fixes toward sustainable, long-term economic growth.

The upcoming budget is being described as a critical transition point, with Pakistan expected to exit its current International Monetary Fund (IMF) Extended Fund Facility in late 2027. Experts argue that the government must now move beyond routine tax adjustments and austerity-driven measures that have dominated recent budgets.

For years, Pakistan’s fiscal framework has relied heavily on indirect taxes and withholding mechanisms that place a disproportionate burden on existing taxpayers, while leaving large parts of the informal economy under-taxed. Analysts say this has contributed to a persistently low tax-to-GDP ratio and limited fiscal space for development spending.

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A key recommendation is the creation of a unified national tax coordination system to streamline federal and provincial taxation processes. Such a reform would aim to reduce administrative complexity, improve compliance, and lower the cost of doing business.

Reform advocates also highlight the need to modernise agricultural taxation by shifting from acreage-based assessments to income-based taxation, while protecting small subsistence farmers. Similarly, they propose progressive taxation on speculative urban land holdings to discourage unproductive investment.

On the industrial side, experts stress the importance of reducing energy costs and borrowing rates to make Pakistani exports globally competitive. They argue that exporters should be shielded from excessive advance taxes and delays in refunds, which currently weaken industrial productivity.

Improving the ease of doing business is also seen as essential, with proposals for a digital “single window” system to integrate permits, licences and regulatory approvals.

Finally, analysts emphasise that expenditure reforms and performance-based governance must accompany revenue measures, ensuring that public spending is tied to measurable outcomes. A broader post-IMF economic roadmap is also being urged to support long-term planning beyond fiscal stabilisation.