There is a national consensus that existing tax policy needs to be reformulated to provide an equitable, pragmatic, investment-oriented and business-friendly tax system, integrating good tax administration with simplified tax laws that are easily understood and hassle-free from the implementation perspective. Efforts of the government in the past to reform the tax system through special task forces, advisory committees, reform commissions, recruitment of new members on market wages and relying on the reports of so-called foreign experts had not yielded any positive results or acceptability from the taxpayers. It remained a closed door, bureaucratic exercise with patch work here and there, with no meaningful dialogue with the people and experts who matter in the subject. In the absence of a well-designed tax policy, the agenda of tax reforms would always remain lopsided. The government should not make any legislative and administrative changes until a transparent tax policy is announced and support of those who are affected by it, is secured. Over the period of time our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need to discuss the philosophical framework and principles that should be the main concern of our tax policy that is above mere achieving of targets set out unreasonably by foreign donors. Our potential is much higher than these targets, which we can never attain with the present tax laws and incompetent, inefficient and corrupt tax machinery. Equity Principle If a given amount of revenue is needed to finance public services, then each taxpayer should contribute in line with his ability-to-pay taxes. Those who possess more economic power (income and wealth) should contribute more to public exchequer and vice versa. The duty to pay taxes is seen as a collective responsibility rather than a personal one. The ability-to-pay principle views tax policy issues in isolation to incidence of public expenditure. Many regard this principle as the most equitable and just method of taxation-emphasized primarily for its redistributive role. We in Pakistan have completely deviated from this principle, which is a constitutional obligation of the government. We have to follow Quranic injunctions in this regard which unambiguously and unequivocally commands us to spend in Allah’s way whatever is surplus after the fulfillment of one’s legitimate needs [2:219]. There is no room for concentration of wealth in a true Islamic society. The existing tax system is highly exploitative and unjust. It protects the rich and exploitative elements that have monopoly over economic resources. There is no political will to tax the privileged classes. The common man is paying an exorbitant sales tax of 17% (on many finished imported items the impact is as high as 35% after adding all other duties, taxes etc) on essential commodities like eatables, but the mighty sections of society such as big industrialists, landed classes, generals and bureaucrats are paying no wealth tax/income tax on their colossal assets/incomes. The IMF as a condition for a new bailout for Pakistan wants increase in rate of sale tax from 17% to 18%. The World Bank in Pakistan Revenue Mobilisation Project has not shown any indication of taxing the rich though noted as under: A detailed gap analysis that has been recently completed by the World Bank indicates that Pakistan’s tax revenue potential would reach 26 percent of GDP, if tax compliance were to be raised to 75 percent, which is a realistic level of compliance for LMICs. This means that the country’s tax authorities are currently capturing only half of this revenue potential, i.e. the gap between actual and potential receipts is 50 percent. The size of the tax gap varies by tax instrument and by sector. The tax gap in the services sector is larger than in the manufacturing sector (67 percent vs. 46 percent respectively) and it is larger for the GST/GSTS than for income tax (65 percent vs. 57 percent respectively). Tax policy must be used as a tool of distributive justice. The Government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty The determination of a tax base capable of measuring an individual’s ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax worldwide. In Pakistan we have moved from this policy to unequal sacrifice rule where the mighty civil and military bureaucrats (now they are part of the landed aristocracy by getting State lands as awards and rewards), rich industrialists and greedy businessmen are paying meagre personal taxes and the poor people are compelled to pay exorbitant sales tax and subjected to hardships due to ever rising costs of public utilities and POL products. This is in direct violation of Quranic Article 3 of the Constitution of Islamic Republic. It is the duty of the government to immediately remove these dichotomies and distortions. Taxes should be for the welfare and benefit of public at large along with making the State invincible, but definitely not for the luxuries of the rulers and State functionaries. Benefit Principle According to this principle, an equitable tax system is one under which tax payments are based on the amount of benefits received from government services. In other words, the cost of government services should be apportioned among individuals according to the relative benefits they enjoy. Clearly, implementation of the benefit principle presupposes determination of the incidence of public expenditure before deciding distribution of tax burden. Thus it encompasses issues of both tax and expenditure policies. Our successive governments have failed to convince the people that payment of taxes is their collective responsibility. All civil and military governments alike had been engaged in wasteful expenditure, never caring to live within their means and failing to even protect the life and property of the people, not to talk of providing them basic needs of health, education and civic amenities. Are these rulers justified to ask people to tighten their belts while their own lifestyle is lavish? Tax policy must be used as a tool of distributive justice. The Government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty. These welfare-oriented schemes may also include subsidized/free medical and educational facilities, low-cost housing, and drinking water facilities in rural areas, land improvement schemes, and employment guarantee programmes. Once people see the tangible benefits of the taxes paid, there will be better response to tax compliance. Taxes cannot be collected through harsh measures and irrational policies. The rulers, policy makers and tax bureaucrats would have to demonstrate a clear inspirational model by their actions, so that the taxpayers can place their trust in them and pay taxes honestly and diligently. The writer, Advocate Supreme Court,is Adjunct Faculty at Lahore University of Management Sciences (LUMS)