Pakistan today finds itself trapped in a dangerous economic vortex where the state is attempting to increase revenue by placing ever-growing pressure on the economy, while the economy itself continues to shrink under that very burden. Industries are shutting down, employment opportunities are shrinking, consumption is falling, and consequently, the tax base itself is collapsing. It is a self-defeating economic model in which the state appears more focused on squeezing the economy than expanding it.
In my view, Pakistan’s core problem is not simply low taxation; it is the extraordinarily high cost of production. When industrial electricity prices in Pakistan range between 45 and 65 rupees per unit, while competing economies in the region provide electricity to industries at 15 to 25 rupees per unit, Pakistani manufacturers simply cannot compete in global markets. Combined with high corporate taxation, policy uncertainty, expensive financing, and regulatory instability, the environment has become deeply hostile for industrial investment.
Pakistan now stands at a point where the state increases taxes to raise revenue, but the resulting economic contraction ultimately destroys the very revenue it seeks to generate. This contradiction has trapped the country in a dangerous cycle of low growth, low investment, and weak tax recovery.
I believe Pakistan urgently needs a different economic philosophy — one in which the state temporarily absorbs part of the burden in order to revive industry, exports, and employment.
I believe Pakistan urgently needs a different economic philosophy – one in which the state temporarily absorbs part of the burden in order to revive industry, exports, and employment. If industrial electricity tariffs were reduced from an average of around 50 rupees to approximately 30-32 rupees per unit, the country would require a targeted annual subsidy of roughly 500 to 550 billion rupees. Similarly, reducing corporate tax rates from the current effective range of 29-39 per cent down to 20-25 per cent would create an additional revenue shortfall of approximately 200 to 250 billion rupees. In total, the state could face a temporary annual revenue gap of around 700 to 800 billion rupees. At first glance, this appears to be a massive fiscal burden. But the real question is not what the state loses initially – the real question is what the economy gains in return.
If these policies generate even an 8-10 per cent increase in industrial production and add 10 to 15 billion dollars in exports, the resulting economic activity could expand by nearly 4 to 5 trillion rupees. That expansion alone could generate approximately 350 to 450 billion rupees in sales tax revenue, another 250 to 350 billion rupees in income tax collection, and an additional 150 to 200 billion rupees through related economic sectors. Within three to four years, the same policy could potentially generate between 750 billion and 1 trillion rupees in annual revenue.
This is not theoretical economics. The model has already been successfully implemented across the world.
Bangladesh supported its textile sector after 2000 through cheap energy, export incentives, and tax facilitation. As a result, its exports surged from roughly 5 billion dollars to nearly 50 billion dollars. Vietnam adopted low-cost industrial energy policies, export-oriented reforms, and tax incentives in the 1990s. Today, Vietnam’s exports exceed 300 billion dollars, transforming the country into one of the world’s leading manufacturing hubs. Turkey, following its 2001 financial crisis, revived its economy through industrial financing reforms, energy restructuring, and export incentives, leading to rapid economic recovery and export expansion.
All these examples demonstrate a simple truth: when the state supports productive sectors strategically, the resulting economic growth eventually returns far greater revenue to the state.
This model also revitalises the demand side of the economy. When industries operate, jobs are created. When employment rises, incomes increase. When incomes rise, consumption expands. One individual’s spending becomes another individual’s income, creating the positive economic cycle necessary for sustainable growth. In my opinion, Pakistan today does not primarily need higher taxation – it needs a larger economy.
Interestingly, even institutions like the International Monetary Fund do not fundamentally oppose such models, provided subsidies are targeted, temporary, and tied to structural reforms. If Pakistan successfully addresses electricity theft, reforms capacity payments, and limits subsidies specifically to export-oriented industries, such a framework could become internationally acceptable.
Unfortunately, however, not every subsidy in Pakistan is directed toward productive economic expansion. Some subsidies merely guarantee private profits while transferring risks to the public – and this is precisely where Punjab’s new wheat procurement model becomes deeply concerning.
The new corporate wheat procurement framework introduced in Punjab is being marketed as a modern reform initiative, but a closer examination of its financial structure reveals uncomfortable similarities with the model previously used in Pakistan’s Independent Power Producer (IPP) agreements – arrangements whose long-term costs are still being paid by ordinary citizens through electricity bills.
Under this system, corporate aggregators are placed at the centre of wheat procurement operations. These companies provide only 30 per cent equity financing, while the remaining 70 per cent is borrowed from banks under full guarantees provided by the Punjab government. In practical terms, this nearly eliminates private investor risk while shifting ultimate liability onto the state. The problem extends beyond financing alone. These companies are provided access to government storage facilities, face limited market risk, enjoy government-backed demand guarantees, and still receive guaranteed profit margins ranging between 10 and 16 per cent. In any genuine free-market economy, such guaranteed returns would be considered extraordinary.
A realistic cost analysis makes the issue even clearer. Assuming wheat is procured at approximately 3,500 rupees per maund, with 70 per cent financing, interest rates of 12-13 per cent, and an 8-9 month holding period, financing costs alone amount to roughly 215 to 220 rupees per maund. Adding guaranteed profit margins of 350 to 560 rupees per maund, alongside handling and leakage costs of another 70 to 100 rupees, pushes the total procurement cost to nearly 4,150 to 4,380 rupees per maund. That creates an additional burden of roughly 650 to 880 rupees per maund.
At a procurement volume of approximately 3 million tons of wheat, the resulting annual burden could rise to between 50 and 66 billion rupees. The obvious question is: who ultimately pays this cost? The answer is equally obvious – the Pakistani public.
In my view, the most troubling aspect of this model is that it does not eliminate costs; it merely converts them into deferred liabilities. Today’s fiscal burden is temporarily hidden, only to return later at a much higher cost. This is precisely the same structural mistake that trapped Pakistan in the long-term capacity payment crisis associated with IPPs.
Most tragically, had the same 50 to 66 billion rupees been transferred directly to farmers, they could have received an additional 650 to 880 rupees per maund in support. Instead of selling wheat at approximately 3,500 rupees per maund, farmers could have earned 4,200 to 4,400 rupees. That would have strengthened rural incomes, improved farmers’ ability to finance future crops, and enhanced agricultural productivity overall. Instead, those margins are now being transferred to corporate aggregators.
It would therefore not be inaccurate to say that the traditional middleman has not disappeared – he has merely returned wearing a corporate suit.
Pakistan today faces two fundamentally different economic choices. One path involves supporting productive sectors, reviving industry, increasing exports, and creating employment. The other involves guaranteeing private profits while transferring risks and liabilities onto the public treasury.
If the state temporarily absorbs a burden of 700 to 800 billion rupees in order to revive industry, exports, and employment, the resulting economic expansion could repay that burden many times over within a few years. But if Pakistan continues creating hybrid models that guarantee private profits while socialising risks, the country may once again fall into another long-term financial trap. Pakistan’s real strength lies in its industries, its farmers, its workers, and its youth. If these segments of society are given room to breathe economically, they themselves can pull the country out of its current crisis.
The writer is Foreign Research Associate, Centre of Excellence, China Pakistan Economic Corridor, Islamabad.