Fiscal justice beyond the tax trap—I Taxing ownership, protecting livelihoods

Pakistan’s fiscal debate has acquired a disturbing habit. The state fails to collect fairly, and the prescription is another burden on those already within reach. A salaried person cannot conceal a payroll entry. A consumer cannot negotiate the tax embedded in a bill. A documented business cannot escape demands that arrive before its income has materialised. Ownership of valuable assets, meanwhile, does not always translate into an equivalent public contribution.

The question is not whether Pakistan needs revenue. It does. The question is whether the present distribution of that burden is economically sensible, socially defensible and capable of sustaining the state without exhausting the society that supports it.

Our recent discussion of Dr. Ehtisham Ahmad’s work on fiscal federalism provides an opportunity to pursue this question. His scholarship deserves engagement, including his criticism of fragmented administration. His new paper with Giorgio Brosio also recognises the dangers of computerising defective procedures and considers simpler property taxation. These propositions deserve to be developed into practical reform.

The disagreement concerns what should come first and how success should be judged. Administrative integration can improve collection. It cannot, by itself, tell us whether the tax being collected is fair. A faster machine can enforce a badly designed charge with greater efficiency. Citizens need a better fiscal bargain, not merely a more efficient demand for payment.

In the third edition of Towards Broad, Flat, Low-rate and Predictable Taxes, it is argued for a simpler system combining wider coverage with lower rates, a federalised collection agency and effective remedies. Predictability matters because an investment decision extends beyond the next budget speech.

An enterprise cannot plan confidently when a lawful transaction may acquire another levy, a refund remains unavailable or the meaning of a provision changes with the officer applying it.

This argument should be tested seriously. It should not be weakened by claiming that every reduction in a tax rate necessarily increases revenue. If a rate falls from 18% to 8%, the effective collected base must rise to 2.25 times its previous size merely to preserve receipts from that tax, other things equal. This is arithmetic, not an econometric forecast. The policy challenge is to establish how much additional coverage, compliance and economic activity is achievable, and how the transition will be financed.

Evidence on simplification supports neither complacency nor miracles. The International Monetary Fund’s study of Russia’s flat-tax reform found improved compliance, but could not cleanly separate the effect of changed tax parameters from accompanying enforcement. That is a reason to design reforms as a coherent package and evaluate them carefully. It is not a licence to announce that lower rates always pay for themselves—Ivanova, Keen and Klemm, The Russian Flat Tax Reform, IMF WP/05/16

We should apply the same discipline to wealth taxation. Taxing property, taxing net wealth, taxing income earned from assets and collecting Zakat are distinct arrangements. They have different bases, exemptions, purposes and administrative requirements. Calling all of them an asset-based system does not remove those differences.

The strongest immediate case is to bring valuable, under-assessed property into a broad and predictable system at modest rates, with protection for households facing genuine hardship. The IMF’s 2024 practical note on property-tax reform supports the potential of broad bases and modest rates to finance better local services. This is directly relevant to a country where property ownership and the quality of municipal services must be brought into a more accountable relationship—Grote and Wen, IMF, How to Design and Implement Property Tax Reforms (2024)

There is also a serious economic argument for taxing wealth rather than relying exclusively on its reported returns. Guvenen and co-authors model how a wealth tax can shift burdens away from more productive entrepreneurs towards less productive holders of capital. Their results offer a mechanism worth examining. They are model-based findings calibrated to another economy, not empirical proof that Pakistan can replace its existing revenues overnight—Guvenen et al., Use It or Lose It: Efficiency Gains from Wealth Taxation.

Intellectual honesty requires confronting the contrary argument. The IMF’s How to Tax Wealth generally favours strengthening taxes on actual capital income and inheritances over introducing a new net-wealth tax. A stock-based charge can be onerous when returns are low. An annual charge of 2.5% of an asset’s value equals half of a 5% annual return, before other liabilities. A small percentage of wealth is not necessarily a small burden on income—IMF, How to Tax Wealth (2024).

Zakat offers a different and deeply rooted starting point: the proposition that ownership carries obligations towards people in need. Ushr brings agricultural production into that discussion. Their ethical force deserves respect. Their implementation requires clarity about eligible assets, thresholds, timing, beneficiaries, cultivation conditions and the relationship with existing levies. Religious recognition cannot substitute for accountable administration.

The recent Business Recorder article by Manan Aslam and Shahzaib Shaoor is useful precisely because it treats Zakat as a complementary source of social finance and calls for credible measurement of its potential. It does not establish that Zakat can finance every function of government. We should build on that distinction rather than attribute to the article a claim it does not make—Aslam and Shaoor, Rebuilding fiscal justice, Business Recorder, 14 October 2026

A dependable Pakistani model would have connected but separately accounted components: predictable taxation for general public expenditure; stronger taxation of under-taxed property and wealth where legally and administratively feasible; and protected Zakat and Ushr arrangements serving their legitimate purposes. Citizens outside a religious collection system must enjoy equal access to public services and social protection through general revenues. Justice cannot depend on religious classification.

Nor should we assume that people who value Zakat necessarily trust its official administration. That proposition needs evidence. A system that publishes audited collections, disbursements and outcomes may earn confidence.

A system that invokes faith while concealing its accounts may destroy it. Voluntary giving already taking place must be measured before the state describes every additional formal receipt as new national resources.

The next stage is practical. Map assets without counting both company property and the full value of shareholders’ claims as separate wealth. Establish transparent valuation and appeal rights. Measure household burdens after taxes and transfers. Test simpler rates alongside improved administration. Publish conservative revenue estimates, including the cost of exemptions, non-compliance and liquidity relief. Fund essential services through the transition rather than promising that future growth will settle today’s bills.

Our critique should target Pakistan’s actual fiscal structure, not an imaginary consensus in which every Western economist recommends high rates on every base. Much useful scholarship challenges precisely those assumptions. Ideas should be judged by evidence and consequences. Debt and inflation also have several causes; attributing both to the geographical ancestry of taxation would explain too little.

Pakistan needs to shift the argument from how much more can be extracted to how fairly the necessary resources can be raised and used. Lower, predictable burdens on productive activity and a credible contribution from accumulated wealth are a serious programme for investigation and reform. Returning to the moral roots of Zakat and Ushr can strengthen that programme, provided we bring the same insistence on evidence, rights and public accountability to every institution entrusted with people’s money.

[To be continued]

Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.