Ikramul Haq

International experience suggests that successful energy reforms require much more than financial restructuring. They require credible governance reforms. Commercial entities must operate under predictable rules. Subsidies should appear transparently in budgets rather than being concealed within corporate balance sheets.

Meaningful reform demands more than periodic amendments to provincial tax statutes

The previous part VIII of this series concluded that a just tax system must satisfy more than the requirements of arithmetic. It must rest upon legislative competence, representative consent, rational classification, due process, protection against arbitrary deprivation, transparent expenditure and effective remedies. Parliament, while levying taxes cannot constitutionalise injustice merely by enacting it. Pakistan’s fiscal crisis will not be resolved by asking citizens to finance an unreformed state through increasingly coercive instruments.ContentsThe usefulness—and limits—of the tax-gap lensThe selective fiscal stateWithholdingisation is not income taxationContradictions within the reform programmeProperty taxation and constitutional competenceRevenue without expenditure transformationBeyond another catalogue of reforms A recent book by Dr Hafiz A. Pasha, Fatima Malik and Hafsa Tanveer, Pakistan: Reforming an Inefficient and Inequitable Tax System, provides an appropriate opportunity to carry that argument forward. The volume is ambitious, data-rich and deserving of serious attention. Few recent studies attempt, within a single work, to map federal and provincial taxation, estimate tax gaps through different methodologies, examine incidence across income groups and sectors, evaluate fiscal incentives and finally present a quantified reform programme. Its central diagnosis is familiar but supported by extensive empirical work. Pakistan combines high statutory rates with a low tax-to-GDP ratio, excessive dependence on indirect taxation, pervasive evasion, severe sectoral disparities and weak provincial revenue mobilisation. The authors propose reforms that, in their estimation, can increase the national tax-to-GDP ratio by approximately three percentage points by 2027–28. The principal difficulty lies not in what the book measures. It lies in what the framework of measurement necessarily leaves outside its calculations. The usefulness—and limits—of the tax-gap lens The organising idea of the book is the tax gap. Through cross-country regressions, a representative-tax-system approach, monetary estimates of evasion and bottom-up calculations, the authors conclude that Pakistan possesses the potential to collect approximately three percent of GDP more in taxes. This is analytically valuable. It also risks converting a constitutional and political problem into an accounting exercise. Pakistan’s College Education Crisis Detouring Development Why are Muslims attracted to Europe? Limited Resources, Infinite Flight: The Metaphor of Kohsar University Muree A tax gap is not necessarily a reservoir of revenue waiting to be collected. Parts of it may reflect privileges protected by influential groups. Other parts arise from low productivity, fragmented enterprises, unemployment, weak financial inclusion and the regulatory costs created by the state itself. Informality is not always a voluntary choice made for the purpose of evasion; it can also be a survival strategy in an economy where formalisation invites multiple taxes, withholding obligations, inspections and compliance costs without ensuring reliable public services. Citizens also judge taxation in relation to expenditure. Their reluctance cannot be understood solely as non-compliance when additional revenue appears likely to finance debt servicing, administrative expansion, elite concessions, loss-making state enterprises and politically negotiated subsidies rather than education, healthcare, transport, security of property and equal economic opportunity. The decisive question is consequently not only how much more can be collected. It is who controls the state, who bears its burdens, who receives its rents, and why technically sound reforms repeatedly fail. Public finance asks how the gap should be closed. Constitutional Political Economy asks why the beneficiaries of the existing arrangement would permit it to be closed fairly. The selective fiscal state The book repeatedly recognises the presence of powerful vested interests. It identifies the under-taxation of property, agriculture, wholesale and retail trade, real estate and parts of the services sector. At the same time, it finds a disproportionate burden upon large-scale manufacturing, banking and formal businesses. Its estimate that industry bears taxes equivalent to 23.8 percent of its value added, with the incidence on large-scale manufacturing exceeding 36 percent, is particularly revealing. These figures demonstrate that Pakistan does not suffer from a uniformly low-tax equilibrium. Pakistan has created a selective fiscal state: coercive towards visible and organised taxpayers, accommodating towards politically protected or administratively difficult constituencies. This conclusion should change the design of reform. Where political influence determines the tax structure, another catalogue of proposed rates and bases cannot alter the equilibrium by itself. Reform must address the rules through which fiscal choices are made, concessions are granted and enforcement is selectively applied. A technically perfect proposal remains politically irrelevant when those who must enact it derive power from the arrangements it seeks to dismantle. Withholdingisation is not income taxation The book correctly notes that withholding and advance taxes generate overwhelming part of total income-tax revenue and have failed to eliminate evasion. It also recognises the distortions created by presumptive/mimum taxation and the fragmentation of income into separately taxed blocs. The consequences are more serious than those of an imperfect collection technique. Withholdingisation represents the gradual abandonment of income taxation as a levy on net accretion to economic power. Banks, utility companies, telecom operators, employers, import authorities, registrars and purchasers have been converted into unpaid tax collectors. Gross transactions are taxed without determining actual income, allowable expenditure, losses or the taxpayer’s real capacity to contribute. The revenue authority obtains money without developing the institutional capacity to examine accounts, conduct intelligent audits and establish taxable income. Compliant businesses suffer liquidity costs and wait for adjustments or refunds, while informal and influential sectors remain beyond meaningful assessment. The reform of income taxation must restore the return, assessment and audit as its foundations. Withholding should remain confined to situations where it is a genuine advance payment—principally salaries, dividends, profit on debt and payments to non-residents (mostly covered under tax treaties). It should remain fully adjustable against the final liability. A system based upon extracting money from every visible transaction may achieve collection targets. It cannot be described as a coherent income tax. Contradictions within the reform programme The book advocates broad-basing and criticises presumptive taxation, but later recommends restoration of a one-percent fixed tax on export proceeds. It supports neutrality while proposing a general five-year tax holiday for investment, enhanced deductions for energy costs and other selective allowances. These proposals arise from genuine concerns. Pakistan’s investment rate remains dangerously low, exporters face high energy

The debate over Pakistan’s administrative structure has returned to the national stage after Interior Minister Syed Mohsin Raza Naqvi suggested that the country should seriously examine the question of creating new provinces or administrative units. Predictably, the discussion immediately descended into familiar political slogans. Some portrayed the proposal as a threat to federalism, others embraced it as the long-awaited solution to governance failures. Between these two extremes lies a far more important question: what does the Constitution of Pakistan actually permit, and what course best serves national unity at a time of unprecedented regional instability? The timing of the debate is significant. Pakistan today faces persistent security challenges in Balochistan and Khyber Pakhtunkhwa, constitutional sensitivities relating to Azad Jammu and Kashmir, continuing political polarisation, and a rapidly deteriorating strategic environment as conflict in the Middle East threatens to reshape regional geopolitics. In such circumstances, constitutional reform should not be driven by political expediency. It must be guided by constitutional principles, empirical evidence and the long-term interests of the federation. The Constitution of islamic Republic of Pakistan is neither silent nor rigid on the question of creating new provinces. Article 1 recognises Pakistan as a federation consisting of provinces and territories whose limits may be altered in accordance with the Constitution. However, Article 239(4) places an important constitutional safeguard on any proposal affecting provincial boundaries. No constitutional amendment that alters the limits of a province can become law unless, in addition to obtaining the prescribed parliamentary majority, it is approved by not less than two-thirds of the members of the provincial assembly concerned. This requirement reflects the federal compact. Provinces are not merely administrative divisions; they are constitutional partners in the federation. Consequently, no province can be divided, merged or otherwise altered through a simple parliamentary majority in Islamabad. Provincial consent is itself a constitutional requirement. This constitutional position explains why proposals for South Punjab, Bahawalpur, Hazara or other new provinces have repeatedly surfaced over the past two decades but have never matured into constitutional reality. Various drafts, often described collectively as proposals for a Twenty-Eighth Constitutional Amendment, have circulated in political and academic circles. They have contemplated the creation of additional provinces together with corresponding adjustments in Senate representation, National Finance Commission allocations, provincial institutions and administrative structures. Yet none has commanded the political consensus demanded by Article 239. Constitutional design has proved stronger than political rhetoric. Beyond Public Finance: Towards Constitutional Political Economy of Pakistan—IX From measuring Pakistan’s tax gap to confronting the state behind it Pakistan’s College Education Crisis Detouring Development Why are Muslims attracted to Europe? The debate, however, should not begin with Article 239. It should begin with Article 140A. Inserted through the Constitution (Eighteenth Amendment) Act of 2010, Article 140A obliges every province to establish a local government system and devolve political, administrative and financial responsibility and authority to elected representatives. This is not merely a recommendation. It is a constitutional command. Unfortunately, after even lapse of 16 years, this remains a constitutional provision that has been implemented (sic) with greater reluctance. Successive provincial governments, irrespective of political affiliation, have preferred centralised provincial bureaucracies over constitutionally empowered local governments. Elections have been delayed, powers diluted, finances retained by provincial capitals and administrative authority reclaimed through executive control. The result is that Pakistan continues to speak the language of devolution while practising administrative centralisation. Before demanding new provinces, one must ask a more fundamental question: has Pakistan sincerely implemented the Constitution it already possesses? The empirical evidence nevertheless deserves serious attention. Pakistan has experienced extraordinary demographic transformation since independence. The country’s population has increased from approximately 34 million in the early years of independence to over 255 million today, yet the number of provinces has remained unchanged. The presentation recently unveiled on constitutional and administrative reforms demonstrates this remarkable contrast and argues that governance structures have failed to evolve alongside population growth. It further notes that each of Pakistan’s four provinces administers populations exceeding those of many sovereign countries and that, among major federations, Pakistan places an unusually large administrative burden upon each provincial government. Whether one accepts every conclusion of that presentation/study or not, the underlying constitutional question cannot be ignored. Effective governance depends not merely upon constitutional powers but upon administrative reach. A provincial capital hundreds of kilometres from remote districts inevitably encounters greater challenges in delivering education, healthcare, policing and justice than a more decentralised system. The presentation also links many development indicators with administrative distance from provincial capitals, suggesting that constitutional debate should be informed by measurable governance outcomes rather than political sentiment alone. However, administrative efficiency is only one dimension of federalism. The second is national integration. Pakistan’s history demonstrates that provincial identities become dangerous only when constitutional grievances remain unresolved. Conversely, attempts to suppress legitimate constitutional debate merely strengthen centrifugal tendencies. The Constitution therefore wisely provides a peaceful and democratic mechanism through which territorial adjustments may be considered while ensuring that no province loses its constitutional status without its own consent. This balanced approach deserves preservation. Current security realities also counsel prudence. Parts of Balochistan continue to face organised violence supported by hostile external actors. Khyber Pakhtunkhwa confronts renewed terrorist activity along its western frontier. Azad Jammu and Kashmir occupies a unique constitutional and strategic position within Pakistan’s national policy on Jammu and Kashmir. Simultaneously, the widening conflict across the Middle East has introduced new uncertainties affecting regional security, energy supplies and geopolitical alignments. These circumstances require a stronger federation rather than a weaker one. That objective, however, should not be confused with excessive centralisation. Strong federations are built upon responsive institutions, constitutional legitimacy and public confidence. Citizens judge the State not by constitutional theory but by whether schools function, hospitals remain open, justice is delivered promptly and basic civic services reach every district. Equally important is the responsibility of political leadership. Statements by political actors—including repeated interventions by Maulana Fazlur Rehman on constitutional and provincial questions—must be evaluated through the prism of constitutionalism rather than political

Nor can the executive create a new taxable event through rules, notifications or administrative directions where the legislature has not

The real measure of reform is not another incentive, levy or revenue target. It is whether the State itself is finally made answerabl

Justice must do more than correct an entry after years of litigation. It must remove the financial benefit of wrongdoing, compensate

Pakistan’s battery revolution has arrived. The question is whether policymakers will use it to reform the market—or merely add another layer

Every pre and post budget debate in Pakistan presents a familiar headline: the country's tax-to-GDP ratio remains among the lowest in the region.

This question will determine whether the proposed transformation redesign of the financial system or remains confined to the language