ON one side stand businesses, salaried citizens, traders and ordinary consumers who feel crushed under the weight of taxation. Rates are high, compliance is cumbersome and penalties are harsh. On the other side stand official statistics showing Pakistan’s tax-to-GDP ratio stuck at around nine to 10 per cent for decades. A third side of this triangle is the Federal Board of Revenue, assigned ambitious, often unrealistic, revenue targets, only to be blamed for corruption and incompetence when it falls short. These targets are not only taxing on FBR officials but for the entire economy as well.

Pakistan’s fiscal debate has been shaped by a repeated argument from economists: the country’s fiscal troubles begin with its low tax-to-GDP ratio. Under this intellectual pressure, governments keep raising revenue targets every year without asking whether the tax-to-GDP ratio itself becomes misleading when treated as a policy obsession. Not all GDP is automatically taxable. Several factors make GDP an imperfect denominator for assessing tax performance.

A critical factor is Pakistan’s unequal income distribution. A significant part of national output comes from subsistence farming,........

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