Tax Hikes Spark Widespread Protests in Pakistan
In recent weeks, Pakistan has experienced a surge in protests fueled by significant tax hikes as part of a $7 billion financial rescue agreement with the International Monetary Fund (IMF). The agreement, while averting an immediate economic collapse, has led to soaring inflation and a dramatic increase in the cost of living, triggering widespread discontent among the populace.
The IMF conditions have imposed a staggering 40% increase in taxes, which has directly contributed to the rising prices of essential commodities. Reports indicate that electricity costs have tripled in various regions, and the price of milk in Karachi has surpassed that of Paris, highlighting the severity of the situation. More than half of an average Pakistani household's income is now allocated to food expenses, making basic necessities increasingly unaffordable for many citizens. Niaz Muhammad, a fruit and vegetable seller in Islamabad, lamented the changes, stating, "People simply don’t have the means to buy. Customers who used to shop daily are now only buying twice a week. Everyone is suffering."
Economic Challenges and Social Unrest
Pakistan is grappling with the highest inflation rates in Asia, averaging 23% in the last fiscal year, far exceeding wage increases of merely 5% to 10%. Finance Minister Mohammad Aurangzeb acknowledged the "transitional pain" associated with the IMF program but emphasized the necessity of implementing structural reforms to avoid future crises.
The social repercussions are evident, with rising electricity prices inciting frustration across all socioeconomic classes. Social media platforms have seen an influx of videos depicting public discontent. Additionally, the country faces significant economic hurdles, including one of the lowest tax-to-GDP ratios globally, approximately 9%. Despite the increased tax burden on the middle class, government spending has remained unchanged in the new budget, with employee taxes accounting for 42% of total government revenues.
The business sector is also feeling the strain, with corporate tax rates nearing 30%, among the highest worldwide. The government's recent decision to raise export taxes from 1% to 29% has sparked outrage among exporters, leading to protests and advertisements in local newspapers. As a result, many multinational companies have begun to reduce their product volumes, a process referred to as "deflation."
The dire economic conditions have prompted an exodus of Pakistan's talented workforce seeking better opportunities abroad. Analysts predict that while the tax hikes may eventually help control inflation, the economic slowdown will persist, and the hardships faced by the middle and lower classes are unlikely to abate in the near future.
