In the ever-shifting sands of Pakistan’s economic landscape, where the rupee’s value seems to ebb with each passing season and inflation gnaws at the marrow of middle-class existence, the notion of inflation-adjusted income taxation is not merely a technicality. It is a moral reckoning long overdue. The current tax regime, rigid and unyielding, fails to account for the erosion of purchasing power that has become the hallmark of daily life. As prices of essentials soar and the cost-of-living spirals beyond the reach of ordinary citizens, the state’s insistence on taxing nominal income without regard to its real value amounts to a quiet injustice.
Consider the salaried professional in Lahore or Rawalpindi, whose monthly earnings have remained ostensibly unchanged over the past year. Yet, the price of wheat, electricity and even the humble cup of chai has surged. This individual, though no richer in real terms, finds himself nudged into a higher tax bracket. His contribution to the exchequer increases not because he earns more, but because the rupee buys less. This phenomenon, known in economic parlance as bracket creep is a silent thief. It steals without notice, without debate and without the dignity of parliamentary scrutiny.
Pakistan’s tax apparatus, helmed by the Federal Board of Revenue, has made strides in digitalisation and enforcement. But it remains curiously indifferent to the principle of fairness that ought to underpin any civilised fiscal policy. In countries where governance is not merely a performance but a promise, tax brackets are routinely indexed to inflation. The United States, Canada and much of Western Europe adjust thresholds annually, ensuring that the tax burden reflects economic reality rather than bureaucratic inertia. Pakistan, by contrast, clings to static slabs as though inflation were a passing inconvenience rather than a structural affliction.
The implications are profound. When taxation fails to account for inflation, it disproportionately affects the middle class, the very segment that forms the backbone of the economy and the conscience of the republic. Entrepreneurs, investors and salaried workers alike find themselves squeezed, their disposable income dwindling, their capacity to save or invest curtailed. The result is not merely economic stagnation but a corrosion of trust in the state’s ability to govern with equity.
To index tax brackets to inflation is not a radical proposition. It is, in fact, the bare minimum that a responsive government ought to undertake. The Consumer Price Index, published monthly, offers a ready metric. Adjustments could be made annually, with transparency and public consultation. Such a reform would not only restore a measure of justice but also signal that the state recognizes the lived reality of its citizens.
Of course, there are challenges. Revenue projections may falter in the short term and administrative capacity must be strengthened. But these are not insurmountable obstacles. They are tests of will, not of possibility. The greater risk lies in inaction, in allowing the tax code to drift ever further from the economic truths it purports to regulate.
In a nation where inflation is not an aberration but a constant companion, to ignore its impact on taxation is to abdicate responsibility. The time has come for Pakistan to embrace a tax policy that is not only efficient but just. Inflation-adjusted income taxation is not a luxury. It is a necessity and one that speaks to the very soul of fiscal democracy.
Shehroz