OVER the past 10 years the state’s tax effort has burdened compliant taxpayers more and more even as it has largely abandoned any attempt to broaden the tax base or bring in more taxpayers. The results are revealing when you look at the revenue numbers over the preceding decade.
From 2015 till 2025, for example, direct taxes became the largest contributors to the incremental revenue effort of the state. Around one-third of all incremental revenues collected in this decade came from direct taxes. The next biggest contributor was State Bank profits, a non-tax revenue contributor, at 19 per cent. Next up was the sales tax, also at 19pc, and then the petroleum development levy (PDL) at 9pc.
But if you look at the velocity of the growth, State Bank profits win as the fastest-growing contributor to the revenue effort, followed by the PDL, both far above 1,000pc growth over this decade (yes, you read that right — 1,000pc!). There are various reasons for why this might be the case. This decade is unusual for having the longest-running stint of double-digit interest rate; eight out of 10 years since 2015 saw the policy rate at or above 10pc. This automatically inflated State Bank profits.
Second, fuel prices saw massive increases largely due to the devaluations this decade is famous for. This led to equally massive PDL recoveries in nominal terms. In fact, in rupee terms, the nominal increases in revenues were 400pc but in dollar terms the increase in the decade was only 87pc, meaning much of the increase was due to inflation and devaluation.
The state is increasingly turning predatory in its thirst for revenues.
This is where it gets interesting. In dollar terms, direct taxes contributed more than 36.5pc of total incremental revenues between 2015 and 2025. State Bank profits and PDL were 28pc and 13pc each. Between them, these three heads alone accounted for nearly 80pc of the entire revenue effort, mounted by the state, in that decade when expressed in dollar terms (to remove the effect of inflation and devaluation). Here something important is revealed.
The state is increasingly turning predatory in its thirst for revenues. The numbers show this clearly. To see the trend, you need a longer time horizon, but it is unmistakable. Taxes on consumption are now supplying less and less to the state’s revenue effort while taxes on incomes, whether personal or corporate, are carrying a growing burden. The next big contribution is coming from the PDL, which is conveniently one of the few large levies outside the federal divisible pool, and is perhaps the closest the state comes to netting consumption in its revenue effort. In 2015, they collected around $1 billion from the PDL. In 2025, that figure jumped to $3.3bn and has crossed $4.3bn already in nine months of this fiscal year. This is a stupendous increase! And State Bank profits are just the return flow from the periods of easy money that successive governments used to pump growth from 2015 to 2018 and again from 2020 to 2022.
The trend is worrying because it shows without doubt that the state’s revenue effort is faltering over the longer run and it is becoming harder and heavier for compliant tax filers and for those consumptive heads that can be captured with ease and whose benefits need not be shared with the provinces, ie, the PDL. This intensification of the revenue effort is what you get when all attempts at reform have largely been abandoned or reduced to rhetorical gimmickry. And this has not happened under only one government. The decade in question has seen the PML-N, the PTI, the PDM and now the PML-hybrid governments take turns at running the country. The collective failure that this data testifies to belongs to each of them.
The run-up to budget time is a good opportunity to reflect on what is really going on here. Having failed in the task of tax reform, the state is now reduced to capturing whatever incomes it can lay its hands on. A new cess by provincial governments on goods, which is being challenged in the courts, is adding another layer of burden on already compliant taxpayers. Meanwhile, rebates offered to school and university teachers are being scaled back, and word is circulating that they are now considering taxing provident fund withdrawals too.
All of this is critical to underline because they are getting ready to pat themselves on the back regarding the very good fiscal numbers coming out of the latest IMF review . They will say the fiscal deficit has dropped to 0.7pc of GDP and we have the highest surplus in the primary balance probably ever recorded at 3.2pc of GDP. In truth, the primary surplus hit a record high in June 2024 and has only climbed ever since. But that is not the point. The real point is how these amazing numbers have been achieved. The data shows it has been done by squeezing those within the net harder and harder. And barring any external bonanza in the form of a windfall due to the ongoing geopolitical successes that Pakistan is admittedly scoring, this faltering revenue effort is now probably the largest drag on growth there is in the country.
You cannot grow your economy while the state is busy bleeding it to fulfil its own expenditure requirements. Unless they can find someone willing to underwrite this dysfunction (and we cannot rule that out), we are stuck in a bit of a doom loop between rising state burden and falling economic ability to carry that burden.
The writer is a business and economy journalist.
X: @khurramhusain
Published in Dawn, May 14th, 2026
