By Sardar Khan Niazi

Whenever revenues fall short, fingers point reflexively at the federal government, the IMF, or external shocks. What receives far less scrutiny is the persistent failure of the provinces to mobilize their own tax revenues — a failure that is no longer defensible, economically or constitutionally. After the 18th Amendment and the 7th NFC Award, provinces gained unprecedented financial autonomy. They now receive the bulk of divisible pool transfers, alongside expanded responsibilities for service delivery. The implicit bargain was clear: greater resources and authority would be matched by greater fiscal effort. More than a decade later, that bargain remains largely unfulfilled. Provincial own-source revenues account for a disturbingly small share of total government revenues. While the federal government collects taxes worth roughly 9–10 per cent of GDP, all four provinces combined barely contribute around 1 per cent. This is not because provinces lack taxable bases. Agriculture, services, property, and retail — sectors largely under provincial jurisdiction — dominate Pakistan’s economy. The problem is not capacity; it is political will. Take agriculture income tax. Agriculture contributes over one-fifth of GDP, yet its tax contribution is negligible. Successive provincial governments have preferred symbolic rates, generous exemptions, and weak enforcement to avoid antagonizing powerful landed interests. The result is an unjust system where salaried individuals and industrial firms bear a disproportionate burden, while large farm incomes remain effectively untaxed. Urban immovable property offers another missed opportunity. Property taxes in Pakistan are archaic, under-assessed, and riddled with discretion. Valuation tables lag market realities. Despite rapid urbanization and soaring real estate prices, property tax collection remains trivial. Provinces routinely announce reforms only to retreat at the first sign of political resistance. Sales tax on services is one area where provinces have shown some progress, particularly Punjab and Sindh. However, even here, collection falls far short of potential due to narrow bases, weak compliance, and fragmentation across provinces. Businesses operating nationally face multiple authorities, inconsistent rules, and overlapping audits, discouraging formalization rather than promoting it. This persistent underperformance has serious consequences. First, it entrenches Pakistan’s dependence on federal transfers and external borrowing. Provinces spend generously — often inefficiently — while relying on Islamabad to do the politically difficult work of taxation. Second, it undermines macroeconomic stability. When federal revenues falter, the entire adjustment burden falls on the center, even though provinces account for a majority of public expenditure. Third, it weakens accountability. Governments that do not tax their citizens meaningfully also feel less pressure to deliver quality public services. Defenders of the status quo argue that taxing agriculture or property is politically sensitive, administratively complex, or economically risky. These arguments do not withstand scrutiny. Many comparable countries successfully tax these sectors. What is truly risky is maintaining a fiscal structure where elites remain undertaxed. The solution does not lie in recentralization or rolling back the 18th Amendment. That debate is both politically unrealistic and conceptually flawed. Fiscal federalism only works when all tiers of government play their part. Provinces must accept that autonomy comes with responsibility. Concrete steps are long overdue. Provinces should introduce progressive, enforceable agriculture income taxes with minimal exemptions. Property taxes must be updated regularly. Sales tax on services should be harmonized across provinces to reduce compliance costs and expand the base. Provincial governments must invest in tax administration, data integration, and enforcement. Ultimately, Pakistan’s fiscal crisis cannot be solved by squeezing the same narrow set of taxpayers or by perpetually seeking external bailouts. Without meaningful provincial tax effort, every reform package will remain incomplete, and every stabilization will be temporary. It is time for the provinces to become organized. Fiscal responsibility cannot be selective, and sovereignty cannot mean spending without paying.