The Economy of Pakistan
Low Taxes and Weak State Finances
Pakistan collects very little tax relative to GDP, forcing borrowing and limiting spending on health and education.
The state lacks resources.
Low base
Tax revenue is around 9 to 10 per cent of GDP, one of the lowest among comparable countries.
Exemptions
Many sectors, such as agriculture and retail, are undertaxed or exempt.
Interest bill
A large share of government revenue goes to interest payments.
Reform
Broadening the tax base is hard because of political resistance.
A narrow base
A few salaried people and large firms pay most of the tax.
Assuming higher tax rates alone fix the problem
A broader base is needed.
Key takeaways
- Tax-to-GDP is very low.
- Exemptions are widespread.
- Interest eats revenue.
- Reform meets resistance.
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