Tax opacity and GDP disconnect: feudal immunity, sectoral aversion

Taxes hold a paradox: paying them breeds resentment toward system; evading them makes system resent you. There is no escape.

Ancient Egypt (3000 BCE) pioneered taxation with Corvée (free labour for public works) and Tithe (in-kind payments). Taxation remained unfair and excessive until Adam Smith (1776) laid foundation of modern tax system, aiming to balance revenue generation, state expenditure and public good without crushing people, but offering little relief to British colonial subjects.

Ask citizens if they want to pay their fair share of taxes, and you'll hear both yes and no. They resent rising taxes as revenues vanish into debt servicing, tax corruption, bloated governance, wasteful spending and policy flops. Besides, subsidising vested interests and absorbing SOEs' losses reached Rs750 billion in FY25 (past decade losses hitting Rs6.5 trillion). Rehabilitation is futile — those responsible can't fix it. Privatisation keeps failing; nobody sane buys entities losing Rs2.33 billion daily. Unviable, better shut them down, pay settlement and save trillions of tax rupees — unless it serves someone's interests.

SOEs are not alone in bleeding public funds — power sector is another vast drain, with Rs380 billion in losses and circular debt nearing Rs2,800 billion in FY25. Instead of tackling these nightmares, MoE erects a smokescreen, blames solar users for Rs159 billion grid burden, ignoring power losses double that amount, and snubbing fact of forex savings on furnace oil and LNG imports. This misleads public and contradicts climate change policy, and reflects an important ministry in disarray, squandering tax rupees.

Every government trots out mantra "people don't pay taxes", claiming they cannot deliver meaningful progress and shifting blame for country's ills onto citizens. Yet, captor of Jinnah's Pakistan — PakRaj (British loyalist Feudal-Military-Bureaucracy nexus) — reaps benefits through feudal tax exemptions compounded by agricultural subsidies in name of poor peasants, and tax breaks, welfare cover for military-industry complex, while Bureaucracy enjoys perks, clout and preferred foreign assignment. Meanwhile, government failed to stop wastage of tax rupees via massive corruption and systems' inefficiency. All above, in plain sight of country's irony of economic decline, high poverty and on short leash of default pleading for IMF's bailouts.

Contrary to government rhetoric, Pakistan's tax-to-GDP ratio is not that abysmal in regional terms (easily enhanced by Feudal taxes). It rose from 8.84% in FY24 to 10.37% in FY25, compared to India at 11.6%, Bangladesh at 7.9%, and Sri Lanka at 13.1%. Reality begs question: how can decent tax collection (92.2% to 100.5% of targets from FY15 to FY25) coexist with state's failure even to uphold basic human rights: adequate health, education, security, decent living, protection from enforced disappearances and discrimination and freedom of speech? Who is accountable in State of Pakistan — legislature, government, judiciary, none, or all?

FBR collected Rs11,900 billion against Rs12,970 billion target in FY25 — solid, but skewed: Direct taxes were Rs5,826 billion (49%) and Indirect taxes Rs6,074 billion (51%) which burdens poor while subsidising rich, besides masking feudal tax escapes. Non-tax revenue (e.g. profits and levies) added Rs4,902 billion.

A core principle in chemical engineering — if you can't measure it, you can't control it — describes Pakistan's tax system as a fog because tax revenues couldn't be truly mapped to mother sectors and subsectors. Perhaps a similar outcome waits for state expenditure side. To clear this fog, four hypothetical scenarios of tax mapping are created. Tax receipts (Rs11,900 billion) per FBR classification allocated across GDP sectors (National Accounts Tables 2024/25, GDP: Rs114,691.813? billion, GVA: Rs106,298.611 billion) in four scenarios.

Scenario 1 (Baseline) uses FBR's tax heads: Industrial Activities take 47.2% (Rs5,611.7 billion — Sales Tax: 2,450.4, FED: 353.4, Customs: 1,312.2, Income Tax: 1,495.7). Agriculture almost tax exempted (provinces collect nominal acreage-based tax). Services 37.5% (Rs4,460.9 billion — Income Tax: 2,982.6 billion, Sales Tax: Rs923.6 billion, FED: Rs414.0 billion — Petroleum: Rs20.2 billion, Customs: Rs140.7 billion). Unallocated amount of 15.17% (Rs1,805 billion included Sales Tax: Rs871.7 billion, WHT: Rs26.3 billion, WWF: Rs21.727 billion, WPPF: Rs40.369 billion, Others: Rs845 billion). Real Estate (3.83% GVA) tax lacks details for allocation and parked there.

In Scenarios 2-4, Unallocated taxes (except WWF/WPPF, due to unclear origins) are reallocated among sectors reflecting their contribution towards GDP, reducing their quantum to get telling outcome.

Scenario 2 (Services-Heavy allocation) shifts Rs615.0?billion Income Tax to Financial Services and Rs120.0 billion WHT to Real Estate Activities, raising Services to 43.7% (Rs5,195.9 billion) and cutting Unallocated to 8.99% (Rs1,070.0 billion).

Scenario 3 (Balanced allocation) reallocates Rs397.5 billion Sales Tax to Manufacturing, Rs402.5 billion Income Tax to Financial Services, and Rs120.0 billion WHT to Real Estate, lifting Industrial Activities to 50.5% (Rs6,009.2 billion), Services to 42.8% (Rs5,098.4 billion), and Unallocated remains 6.49% (Rs772.5 billion).

Scenario 4 (Industry-Heavy allocation) moves Rs637.8 billion Sales Tax and Rs600.2 billion Income Tax to Manufacturing, Rs975.8 billion Income Tax to Financial Services, and Rs100 billion WHT to Real Estate, hitting 57.6% (Rs6,849.7 billion) for Industrial Activities, Services at 46.7% (Rs5,556.7 billion), and Unallocated stands at 4.16% (Rs495 billion).

There is no right or wrong scenario; instead, they show how arbitrary reallocation of Unallocated taxes spotlights Manufacturing, Financial Services, and Real Estate Activities as reform hotspots. However, Wholesale & Retail Trade (18.58% GVA) hides, and Agriculture (24.35% GVA) escapes tax despite massive exemptions worth Rs1,100 billion (Economic Survey 24/25) — clearly against fairness and decency, violating citizens' rights in Jinnah's Pakistan or is it his Pakistan?

Goal here is to spark debate among finance, economic and tax managers, highlighting need for isolating micro/macro segments of GDP contributors and allocating 100% of tax receipts to them. Without this metric, economic and fiscal policies will remain guesswork cloaked in rhetoric and flummoxed by Unallocated obscure heads.

Clear tax revenue mapping would expose where money is truly made, where it vanishes, and who escapes. It is foundation of fiscal truth. Otherwise, fog will persist, shielding privilege, punishing compliance and rewarding evasion. Sadly, it is never honest who find their way, only powerful.