The Government of Pakistan has announced a new tax on retail businesses with an annual turnover of Rs.one million. The Federal Budget 2026-27 has allocated 200 million, which has raised questions among traders, economists, and policymakers. Some see it as a burden on businesses, while others see it as a necessary step towards expanding the country’s tax base and better documenting the economy. However, the debate on this has thrown up another problem that has long faced the Pakistani economy – the country’s reform record is not a lack of reforms, but rather a lack of continuity in the implementation of reforms.
Pakistan’s economic history is a story of policy changes resulting from the shifting priorities of the political parties. In the government of Zulfikar Ali Bhutto, large-scale nationalization was pursued to expand the scope of state control over the major industries. The emphasis with General Zia-ul-Haq was turned to the concept of privatization and market-oriented reforms. Both governments, of Benazir Bhutto and Nawaz Sharif, stressed economic liberalisation, infrastructure development and growth of private sector. In recent years, various governments have adopted IMF-inspired stabilization programs that focused on fiscal consolidation, broadening tax bases, enhancing foreign direct investment (FDI) and economic governance.
What is not in dispute is the fact that these reforms were not completely wrongheaded. The majority of them were brought about by the economics of that era. Many projects were stopped, changed, or discontinued after political changes, however. This cycle has made Pakistan’s economy lose its momentum and caused uncertainty in investors and businesses. Development takes time and can be a disincentive to both domestic and international investments when policy is unpredictable.
The recently released Federal Budget 2026-27 with a value of around Rs, has been announced. 18.77 trillion, aims to achieve macroeconomic stability and growth. The government has fixed an ambitious revenue target for FBR i.e. Rs. 15.26 trillion, 4 percent economic growth and an inflation target of 8.2 percent. These measures are intended to boost fiscal discipline and maintain reforms agreed in the IMF programme. Meanwhile, the government has tried to balance economic and strategic priorities by allocating more resources to development and national security.
In spite of these endeavors, Pakistan is still plagued with structural issues. The tax-to-GDP ratio is still at about 10 percent, which is lower than many emerging economies. A narrow tax base puts pressure on current taxpayers and restricts government spending on education, health, infrastructure and technology, among other areas. Moreover, Pakistan has signed into over two dozen IMF programmes since the late 1950s, and has consistently been urged to broaden the tax base, enhance governance, cut fiscal deficits, and promote exports. The fact that these recommendations continue to be made indicates that structural issues have not been addressed.
The new retail tax should therefore be seen as not only a revenue-raising measure, but as a step towards formalization and documentation of the economic activity. Although documentation can enhance transparency and state capacity, it is unlikely to ensure economic prosperity. An overall pro-growth policy framework including low cost energy, regulatory predictability, industrial competitiveness and investment facilitation is needed for sustainable growth.
Regional connectivity and economic integration are closely related to Pakistan’s economic future from a strategic point of view. The nation’s geographical position makes it a crossroads of South Asia, Central Asia, Middle East and China. The position offers a lot of opportunities for trade and economic cooperation in the transit trade. Pakistan is linked to nearly half a billion people market with the help of various organizations like Economic Cooperation Organization (ECO), which includes the Central Asian States, Azerbaijan, Afghanistan, Iran and Türkiye. But trade volumes with many ECO country members are still not at their potential.
Likewise, China-Pakistan Economic Corridor (CPEC) provides space to enhance infrastructure, investment, and regional connectivity. Economic viability is no longer solely determined by domestic economic reforms but also on the countries’ capacity to participate in regional and international value chains. Many strategic studies scholars contend that economic resilience is a key pillar of the nation’s power, in addition to military power and diplomacy.
Maybe the most significant lesson of the Pakistani economy is that reforms should not be assessed based on the process of introducing new taxes or fiscal measures. Their real strength is being able to endure a political change of guard and to help shape an overall national economic strategy. In countries that are growing economically they develop a consensus over a number of economic priorities and the policies are not impacted by the shifting of governments.
The lack of economic plans, policy frameworks and proposals for economic reforms in Pakistan is not a problem. Its weakness is often its lack of consistency with its implementation. Governments evolve and change, priorities rotate and economic plans are often rewritten. Well-intentioned reforms can lead to short-term gains without taking their place in the national agenda, if they are not.
The new retail tax is thus more than just a measure of fiscal policy. It is a litmus test to see if Pakistan is capable of eliminating the way of policy discontinuity and shifting towards a more stable way of economic management. Such reforms, coupled with institutional coherence, export-led growth, regional economic integration and investor-friendly governance, can help achieve sustainable development and long-term growth. The economic future of Pakistan will not just come from the implementation of new reforms, it will also rely on the sustainability of the reforms for a period long enough to produce positive and long-term results. The author is: student of BS Strategic Studies at National Defence University (NDU), Islamabad.
(Opinions expressed in this article are author’s own, not necessarily the WNAM).
