WASHINGTON, September 15—Unable to sustain solid growth, Pakistan’s economy is teetering on the brink of collapse, with one-third of the population living below the poverty line. S. Akbar Zaidi writes in a new brief that Pakistan’s economic instability stems in large part from low government revenue due to the elite’s use of tax evasions, loopholes, and exemptions. Without tax reform, Pakistan will continue to run an unsustainable debt and be forced to rely on Western donors for bailouts.

Policy Recommendations:
  • Eliminate exemptions. Fewer than three million of Pakistan’s 175 million citizens pay any income tax, and the country’s tax-to-GDP ratio is just 9 percent. By eliminating tax exemptions for the rich, politicians can fund essential social services.
  • Increase tax revenue. Pakistani legislators must build a consensus to tax the rich and elite if they want to match growth rates in nearby developing countries.
  • Spend more on development. Pakistan has spent twice as much on defense during peacetime as it has on education and health combined—this needs to change.
  • Stop the bailouts. Donor countries must put conditions on funding and should emphasize tax and economic reform to help Pakistan develop long-term economic plans for sustainable growth.

“Pakistan’s lack of a proper tax and revenue regime has resulted in high rates of tax evasion, burdening the country with unsustainable debt and undermining its development priorities,” writes Zaidi. “The key to the country’s economic prosperity—even its survival—is a far-reaching program of tax reform.”

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NOTES
  • S. Akbar Zaidi is a visiting scholar in the Carnegie Endowment’s South Asia Program. A visiting professor at Columbia University, with a joint appointment in the School of International Public Affairs and the Department of Middle Eastern, South Asian, and African Studies, his research focuses on development, governance, and political economy in South Asia.  His twelfth book, Military, Civil Society and Democratization in Pakistan, is to be published by Vanguard Press, Lahore in October 2010.
  • The Carnegie South Asia Program informs policy debates relating to the region’s security, economy, and political development. From the war in Afghanistan to Pakistan’s internal dynamics to U.S. engagement with India, the Program’s renowned team of experts offer in-depth analysis derived from their unique access to the people and places defining South Asia’s most critical challenges. offers in-depth expertise on a range of issues relating to South Asia, including nonproliferation, international security, and political and economic development.