Pakistan’s forthcoming budget is best understood not as a routine fiscal statement, but as the expression of an economy operating under prolonged adjustment. The appearance of annual policy choice masks a deeper reality: the steady compression of domestic fiscal space under external conditionality, structural revenue weakness, and an increasingly fragmented political economy. The result is a system in which stabilisation is no longer episodic, but constitutive of how economic governance functions.

At the centre of this configuration lies a persistent imbalance between the scale of the state and its capacity to fund itself. With tax revenues hovering around 10–11 per cent of GDP, among the lowest ratios in comparable emerging economies, Pakistan has effectively narrowed its fiscal reliance onto a limited and highly visible base. In practice, this has meant that salaried individuals and formal-sector enterprises bear a disproportionate share of compliance. The consequence is not only distributional strain but macroeconomic inefficiency: a tax system that increasingly extracts from the most productive and most documented segments of the economy while leaving large pools of wealth insufficiently mobilised.

This distortion becomes more visible when viewed through the lens of inflation and currency depreciation. A monthly income of roughly Rs 100,000, broadly considered middle-class in 2017 when the exchange rate stood near Rs 100 to the US dollar, now operates in an environment where the rupee has weakened to close to Rs 300 per dollar, and cumulative price increases have significantly eroded real purchasing power. Yet tax exemption thresholds, previously anchored around Rs 600,000 annually, have not been adjusted in proportion to this monetary reality. A rational correction would place the threshold closer to Rs 1.2 million, not as a concession, but as an inflation adjustment necessary to prevent structural over-taxation of fixed-income groups in a depreciated........

© The Friday Times