For decades, Pakistani policymakers and international lenders have repeated the same refrain: Pakistanis don’t pay taxes. It is a claim that carries an intuitive appeal. The country’s tax-to-GDP ratio lingers in single digits, well below that of most emerging economies, and the political discourse has routinely cast the public as unwilling, evasive, or outright dishonest when it comes to sharing the fiscal burden. But like many neat slogans, this one obscures more than it reveals. The story of Pakistan’s fiscal malaise is not the stinginess of its citizens. It is the state’s own dysfunction.
The data, when stripped of rhetoric, complicates the caricature. For two decades Pakistan’s tax-to-GDP ratio has hovered between 9 and 11 percent. In FY 2024–25, however, it shot up to 15.7 percent, the highest in more than twenty years—thanks to IMF-mandated measures and a surge in non-tax revenue. Yet this apparent fiscal achievement is deceptive. While the state collects more than ever, up to 65 percent of government revenue is swallowed by debt servicing, leaving little space for investment in health, education, or infrastructure. Pakistan is less a case of an under-taxed economy than of an under-governed one.
At the heart of the issue lies a paradox. The government leans heavily on indirect taxation — sales taxes, import duties, petroleum levies — which by design extract revenue from the public at large, including the poorest. Pakistanis pay these taxes daily at the petrol pump, the grocery store, and the electricity meter. Yet, because these taxes are regressive and largely invisible, they do not register in the public imagination as “paying taxes.” At the same time, the state struggles to widen its base of direct taxation, particularly among the wealthy and politically connected, who remain shielded by loopholes, exemptions, and sheer political leverage.
This dual failure — overtaxing the bottom while under-taxing the top — has left the country in a fiscal cul-de-sac. The government borrows to finance deficits; interest payments consume nearly half of all revenues; and development spending shrinks to a sliver of the budget. The average Pakistani experiences taxation not as a civic duty but as a daily squeeze with little visible return: potholes in the roads, intermittent electricity, hospitals without medicine, schools without teachers. The social contract has frayed because the state’s side of the bargain — service delivery, institutional reliability, economic opportunity — has collapsed.
Digitalisation was meant to offer a way out of this spiral. Pakistan has the foundations in place: NADRA’s biometric database, millions of mobile money users, and tax filing portals that could be streamlined into a more transparent and accessible system. Yet the state has failed to knit these tools into a coherent architecture for accountability. Where India leveraged Aadhaar and GST to bring swathes of the informal economy into view, Pakistan has yet to deploy its own digital infrastructure with similar effect. The irony is that ordinary citizens encounter digitisation primarily in the form of automated billing, mobile top-up taxes, and transaction levies — invisible but constant reminders that they are already paying into a system that gives little back.
Blame, however, has proved politically expedient. Successive governments have found it easier to admonish the public than to reform their own spending. The International Monetary Fund, too, has often reinforced this line, pressing Pakistan to raise tax collection targets without demanding equal vigor in tackling structural inefficiencies or elite capture. As a result, budgets are written to impress creditors rather than to discipline ministries, while citizens are told they are the problem.
The more uncomfortable truth is that Pakistan’s fiscal challenge is less about collection and more about allocation. State-owned enterprises, from the national airline to power distribution companies, bleed billions in losses every year. Subsidies are extended not to foster long-term productivity but to placate influential constituencies. Defense spending remains politically untouchable, while education and health are perennially trimmed to balance ledgers. The tax debate is, therefore, not merely a question of how much revenue can be squeezed from the system but of how existing resources are squandered.
Reframing the problem opens the path to a different solution set. Expanding the direct tax net is necessary, particularly by integrating the informal sector and eliminating exemptions enjoyed by politically connected groups. But equally vital is the restructuring of the state itself: trimming loss-making enterprises, enforcing fiscal discipline across ministries, and redirecting expenditures toward human capital and infrastructure. The true measure of reform is not just whether Pakistan collects more revenue, but whether it uses what it collects to generate growth and legitimacy.
For ordinary Pakistanis, the accusation of tax evasion rings hollow when they feel they are paying twice — once through indirect taxes and again through private substitutes for public goods. Families pay school fees because government schools have collapsed. They buy bottled water because the municipal supply is unsafe. They hire private guards because police protection is unreliable. Even in the digital realm, citizens bear hidden costs — from taxes on mobile wallets to fees on online transactions — while seeing little sign of the state using these digital trails to rationalise spending or curb leakage. In this context, calls for higher taxation without parallel reform amount to asking citizens to underwrite the dysfunction that already drains them.
The scapegoat of the reluctant taxpayer must be retired. Pakistan’s fiscal dysfunction is real, but its root cause is not cultural aversion or mass dishonesty. It is a state that has chronically failed to build the capacity, fairness, and credibility of its tax system. Until the government cleans its own house — by curbing waste, embracing digital tools for accountability, broadening equity, and restoring trust — exhortations for citizens to pay more will continue to ring as hollow as the potholes they drive over every day.
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