How to tell if this is a people’s budget

Everyone now speaks for the poor. International lenders, economists, and ministers all agree that vulnerable households need protection from inflation and low growth. The government presents itself as a champion of ordinary Pakistanis. Yet every year, when the budget arrives, the easiest taxes to raise are still the taxes paid most painfully by ordinary people: petroleum levies, sales tax, excise duties, utility-based taxes, withholding taxes and customs duties that enter prices before the poor even realise they have paid them. A budget should not be judged by the sympathy in the Finance Minister’s speech. It should be judged by who pays after the speech is over. Fuel taxes, import duties, utility levies, sales tax and withholding taxes are usually passed into prices. A well-designed income tax, on the other hand, is different: it is linked to ability to pay and does not directly raise the price of petrol, electricity or daily goods. That is why the debate should not only be about how much revenue is collected. It should also be about where the money comes from. This matters because poverty is no longer an abstract issue. The World Bank has warned that poverty has risen after repeated shocks, including COVID-19, floods, inflation, and macroeconomic stress. Even those not officially counted as poor are struggling to protect their standard of living. The middle class has become the silent victim of this adjustment. Its real income has been squeezed for years, but tax policy still treats many low-income salaried households as if they have surplus income. The basic exemption should not be treated as a political concession. It should be linked to the cost of basic living. PBS household data suggests that middle-income Pakistani households spend roughly Rs63, 000 to Rs77, 000 per month (PBS HIES 2024–25, urban households), while the current exemption threshold is only Rs50, 000 per month. Taxing income below the basic cost of living is not progressive taxation. It is taxing survival. The biggest test, however, remains the informal and politically powerful economy. Visible taxpayers such as salaried people and formal businesses are easy to squeeze because their income is documented. Retailers, wholesellers, service providers and many others in the informal economy remain much harder to tax, not only because of weak documentation but also because of political influence. In my experience, I have never seen a budget where even “well intended” and sincere proposals are not reversed between the budget announcement and the passage of the finance bill. A fixed tax on retailers was announced a few years ago but was quickly withdrawn after trader pressure. That episode showed the real political economy of taxation in Pakistan: it is easy to tax salaries, fuel and formal businesses, but difficult to tax organised commercial lobbies. Making an announcement in the budget is one thing. Having the courage to keep it in the Finance Bill is another. Wholesale and retail trade accounts for nearly a fifth of Pakistan’s economy but contributes a fraction of direct tax revenue. The salaried class, by contrast, has no lobby and no strike threat. To be fair, informality is not sustained only by greed or political protection. It is also sustained by fear of the tax system itself. Many small businesses avoid the formal net because our tax laws are complicated, discretionary and often heavy-handed, and they fear that entering the system will expose them to arbitrary notices and penalties. This is where the coming budget should be tested. There may be a case for rationalising excessive taxes on formal businesses if the purpose is investment, jobs, and documentation. But relief at the top without relief at the bottom is not reform. It is preference. If the state can consider easing the super tax, it can also consider raising the basic exemption for low-income earners. Pensions, official perks and protected benefits are no different. Pensions are not taxed until they exceed Rs10 million a year — roughly Rs833, 000 a month — and even then, only at 5 percent on the excess. If fuel, electricity and daily-use goods can be taxed heavily, very high pensions and official benefits cannot be treated so gently. A state that taxes survival but protects privilege cannot honestly call itself pro-poor. This is why the budget should not be judged by its revenue total alone. If the budget raises petroleum levies, expands sales tax, moves more goods into the Third Schedule, increases withholding taxes, and leaves protected incomes untouched, then it cannot be called a people’s budget, no matter how many times the word “poor” is used in the speech. When the budget is announced, ignore the slogans and ask four questions: First, does it reduce reliance on fuel, GST, utility, and withholding taxes — or increase them? Second, does it raise the basic exemption or protect low-income salaried people — or only give relief where lobbying is stronger? Third, does it bring retailers, wholesalers, real estate gains, large agricultural incomes, high pensions and elite benefits into a meaningful tax net — or merely protect those who have influence? Fourth, do the difficult measures survive until the Finance Bill is passed — or are they diluted once organised lobbies push back? That is the real test. A people’s budget is not one that speaks warmly about the poor. It is one that stops raising money from those who cannot avoid paying and starts collecting from those who can afford to pay. The Finance Minister knows exactly where the untaxed money is. Budget day will tell us whether he has the courage — or the freedom — to go and get it. Copyright Business Recorder, 2026

Read full story on Business Recorder