Pakistan’s latest tax figures offer yet another troubling indication of how deeply flawed the country’s revenue collection system has become. Tax collection from the real estate sector fell by 29 per cent during the first two months of the current fiscal year, highlighting the consequences of policies that appear to provide greater relief to one of the country’s wealthiest segments. The property sector has long been a preferred avenue for investment and speculation among affluent Pakistanis, yet successive governments have struggled to bring it into a fair and effective tax framework.
The decline in real estate tax revenue is particularly striking because it followed the government’s decision to halve advance taxes on property transactions. The tax rate on property sales was reduced to 2.75 per cent, while the rate on purchases was brought down to 1.25 per cent. The result was predictable: revenue from property sales dropped by 32 per cent, while collections from purchases declined by 22 per cent. Overall, real estate tax revenue fell by more than Rs11 billion year-on-year in just the first two months of the fiscal year.
At the same time, the burden on the salaried class remains disproportionately high. Salaried taxpayers contributed Rs91 billion in taxes during the period, roughly 3.25 times the amount collected from the entire real estate sector. This stark contrast raises serious questions about the fairness of Pakistan’s tax structure. Employees whose incomes are documented and taxed at source have little room to avoid their obligations, whereas large sections of the property and informal economy continue to operate with considerably less scrutiny.
The broader tax figures paint an equally disturbing picture. Pakistan’s tax-to-GDP ratio remains around 10 per cent, significantly below the roughly 15 per cent average for comparable emerging economies. At the same time, undocumented economic activity is estimated to account for nearly 40 per cent of total output. This represents an enormous portion of the economy operating outside the formal tax net. In monetary terms, around Rs25 trillion is estimated to remain beyond effective taxation, demonstrating the scale of the challenge confronting the Federal Board of Revenue and policymakers.
Income tax collection has also shown weakness, falling by 4 per cent during the first two months of the fiscal year and missing the target by Rs74 billion. Instead of broadening the tax base and bringing untaxed sectors into the system, the government continues to rely heavily on taxes collected at the import stage. Such dependence may generate immediate revenue, but it is not a sustainable substitute for a broad-based domestic taxation system. A healthy tax structure should derive revenue from a wider range of economic activities, particularly sectors and individuals with the greatest ability to pay.
The decision to provide tax relief to the real estate sector therefore deserves serious scrutiny. At a time when around 29 per cent of Pakistan’s population lives in poverty and millions struggle to meet basic needs, reducing the tax burden on property transactions can appear less like an economic reform and more like a transfer of advantage towards those who already possess substantial wealth. Property ownership is increasingly beyond the reach of ordinary households, while speculative investment in land and real estate has contributed to widening inequalities in wealth and opportunity.
The deeper problem is not simply the tax rate imposed on property transactions but the structure of Pakistan’s economy and the persistence of income inequality. Economic mobility remains weak, meaning that people born into poor households face formidable barriers to improving their financial circumstances. A taxation system that places a heavy burden on documented salaries while offering concessions to wealth-intensive sectors risks reinforcing this cycle rather than breaking it.
Pakistan urgently needs a tax system based on fairness, documentation and the ability to pay. The government must broaden the tax base, improve enforcement against large-scale evasion, bring undocumented economic activity into the formal economy and reduce excessive reliance on import-stage taxation. Most importantly, tax policy should not be designed in a way that rewards wealth accumulation while placing an ever-greater burden on those who earn regular, documented incomes.
The objective of tax reform should ultimately be to create a more equitable economy in which those with greater resources contribute a fairer share towards the public good. Pakistan cannot address poverty, inequality and weak economic mobility while continuing to provide preferential treatment to sectors dominated by wealth and speculation. The government must focus on expanding opportunity for ordinary citizens rather than deepening the advantages of those who are already economically secure.
Shafaqna Pakistan
pakistan.shafaqna.com
Note: Shafaqna do not endorse the views expressed in the article
