Earlier this month, Prime Minister Shehbaz Sharif’s government presented the Federal Budget for the 2025-2026 fiscal year which allocated nearly 50% of the budget to debt servicing alone while severing subsidies – with a 13% cut on power sector subsidies – and announcing plans to broaden the revenue base and introduce new taxes to raise public revenue.
With a projected deficit of 3.9% of GDP and multiple economic challenges, one equitable way to raise revenue in Pakistan is through wealth taxes. But the country’s previous attempts at wealth taxation faced elite resistance and were eventually abolished. In the face of such challenges, a new study, led by ICTD Research Fellows Dr. Max Gallien and Dr. Vanessa van den Boogaard and Dr. Umair Javed from the Lahore University of Management Sciences (LUMS) investigates the determinants of public support for wealth taxes which may help overcome this resistance. The study finds that support for these taxes is influenced by satisfaction and trust in the government, perceived fairness, and transparency in how funds will be spent.
Dr Javed remarked, “These results are significant as this is the first study of its kind providing this level of detail on public perceptions of wealth taxes in Pakistan. Our research presents strategies for policymakers responding to multiple fiscal pressures, including IMF-mandated reforms, that offer a more politically viable and socially acceptable path forward.”
Digital Public Infrastructure in Pakistan
In parallel, another way to expand the tax base and increase compliance is by leveraging the potential of digital public infrastructure (DPI).
“DPI is a digital transformational approach based on interoperable, open source and accessible components – mainly digital IDs, digital payments and data exchange systems,” explains ICTD Research Fellow Dr. Fabrizio Santoro.
By enabling efficient service delivery, seamless data sharing and effective digital governance, DPI has the potential to improve transparency, streamline bureaucracy and limit tax evasion.
“Recent research shows that DPI applications can enhance key functions of tax administration. The experiences of Uganda and Ghana, where national ID systems have been integrated with tax registration, demonstrate that leveraging ID data can increase formalisation and improve the quality of taxpayer information”, write Ahsan Farooqui (ICTD), Farooq Chatha (IDS), and Fida Muhammad and Waqas Ahmed Bajwa (Federal Board of Revenue, Government of Pakistan) in a blog for Global Dev.
They note that Pakistan has made significant advances in integrating DPI into tax administration through initiatives led by the Federal Board of Revenue (FBR) but that challenges related to outdated infrastructure and capacity constrain hinder progress.
To address these issues and stakeholder resistance, “priority should be given to capacity building, fostering partnerships across sectors, and engaging taxpayers to increase awareness of digital tools, encourage participation, and build trust”, the authors say.
Related resources:
- Check our work on taxing high-net worth individuals: Tax, Welfare and Inequality
- Study: Zakat Payments in Pakistan Exceed State Social Protection by Max Gallien, Umair Javed and Vanessa van den Boogaard
- Blog: Pakistanis are paying over 1.7 billion GBP in zakat every year—mostly to women by Max Gallien, Umair Javed and Vanessa van den Boogaard
- Seminar: Digital Public Infrastructure and Taxation in Africa – what have we learnt and what’s next?
