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Pakistan’s growing reliance on higher consumption taxes and punitive Federal Excise Duties (FED) on food items and fast-moving consumer goods (FMCGs) for revenues is increasingly showing signs of the Laffer Curve effect.
The Laffer Curve is the economic theory that, beyond a certain point, higher tax rates begin to squeeze rather than increase government revenue.
Instead of broadening the tax base, steep indirect taxes have reduced affordability, suppressed documented sales, encouraged tax evasion and accelerated the shift of consumers towards the undocumented economy.
From packaged juices and processed foods to other heavily taxed consumer products, businesses argue that the government’s strategy of extracting higher revenues from a narrow formal sector is beginning to undermine industrial growth, investment and the state’s own revenue objectives.
