Governments in developing economies like Pakistan often assume that raising tax rates automatically increases revenue.
This linear arithmetic suggests that there exists an optimal tax rate up to which revenue rises with rate increases.
Beyond that point, however, higher taxes disincentivise productive behaviour, encourage evasion, fuel capital flight, and push economic activity into the informal sector, thus ultimately reducing net revenue. The relationship is therefore quadratic, not linear.
For Pakistan, identifying whether we are operating to the left (where rate hikes still increase revenue) or to the right (where rate hikes shrink the base and reduce revenue) of this peak is a fiscal imperative.
Government-academia partnership could improve tax collection through analysis
Without this empirical knowledge, the Federal Board of Revenue (FBR) risks taking actions that inadvertently constrict the formal economy and worsen the very deficit they aim to bridge.
To put it simply, if Pakistan is currently on the right side of the curve, then conventional tax increases will be counterproductive. In that scenario, the government must pivot towards alternative strategies, including 1) broadening the tax base by bringing undocumented sectors into the formal net, rather than squeezing existing filers; 2) simplifying compliance procedures and reducing discretionary powers, which lower the cost of paying taxes and encourage voluntary registration; 3) rationalising withholding taxes to alleviate the burden on compliant taxpayers.
Given the technical complexity and high stakes involved, a high-level committee of eminent economists should be formed, drawn predominantly from academia and supplemented by senior policy practitioners.
Their academic credentials ensure methodological rigour and independence, while their collective expertise can produce the first empirically grounded estimates of Pakistan’s position on the Laffer Curve. Crucially, their work must be conducted under strict protocols that safeguard data anonymity and official secrecy.
Universities in Pakistan teach the Laffer Curve as an abstract textbook parabola, and students are rarely asked to empirically estimate the elasticity of taxable income (ETI) for, say, textile exporters versus salaried professionals. However, curriculum reform alone is insufficient. The true untapped opportunity lies in formally commissioning universities as research partners for the FBR and the Ministry of Finance.
Through structured memoranda of understanding (MoUs) among the Higher Education Commission, the FBR, and leading Pakistani universities (eg, IBA, Lums, Nust, Pide), we can establish a fiscal research consortium.
This would house specialised econometricians, data scientists and doctoral fellows who can, under strict non-disclosure agreements and secure data environments, run empirical simulations to locate the inflexion point. Through quarterly policy papers and stress-test tax scenarios, the FBR gains rigorous, peer-reviewed analysis without the bureaucratic inertia of permanent government hiring. For universities, this transforms the Laffer Curve from a vintage textbook diagram into a living project that directly shapes national fiscal strategy.
This will build robust internal capacity, which involves training civil servants in advanced econometrics, equipping them with modern analytical dashboards, and establishing permanent research wings as an essential long-term objective that the government should pursue vigorously.
Furthermore, bureaucratic hiring procedures are inherently slow, and the FBR’s core mandate is collection and enforcement, not prolonged academic research.
Partnering with university-based labs offers a complementary, plug-and-play solution: it brings cutting-edge quantitative methods and objective, third-party scrutiny without the delays of permanent recruitment.
In the short-to-medium term, the FBR should sponsor endowed research chairs and policy fellowships within Pakistani economics departments. Senior academics holding these chairs would mentor graduate students in building real-time forecasting dashboards, while the FBR could outsource complex behavioural modelling such as estimating taxpayer responsiveness to rate adjustments directly to university research labs.
This hybrid model ensures that when a fiscal shock occurs, the ministry does not resort to reactive rate hikes; instead, it can commission its academic partners to run scenarios and deliver evidence-based recommendations quickly. In parallel, FBR officials should be trained alongside these academics, ensuring a steady transfer of skills that gradually builds indigenous institutional memory within the government itself.
Finally, at present, income tax returns, sales tax collections, production volumes, and banking transactions data sit in disconnected silos, spread across the FBR, provincial revenue authorities, the Ministry of Industries, and the State Bank. The creation of a National Fiscal Data Warehouse, a consolidated, anonymised digital repository equipped with analytical dashboards and modern pattern recognition tools, would aid in decision-making.
However, taxpayer financial data and personal wealth information are among the state’s most sensitive assets. Any breach of confidentiality would erode public trust and discourage voluntary compliance.
Therefore, access to this warehouse must be governed by zero-trust architecture, differential privacy techniques, and strict de-identification protocols.
Raw individual records must never leave the secure enclave. Instead, accredited academic researchers would work solely with aggregated datasets that reveal behavioural patterns without exposing personal identities. Their role is not to peer into individual wealth, but to analyse macro- level correlations between rate adjustments and base shrinkage.
This government-academia partnership is the missing keystone. It gives the FBR the intellectual firepower it currently lacks, gives universities the real-world relevance they seek, and gives Pakistan a credible pathway toward sustainable revenue generation without squeezing the very taxpayers who sustain the formal economy.
The writer is an Assistant Professor, Department of Economics at Nust.Email: hfarrukh@s3h.nust.edu.pk
Published in Dawn, The Business and Finance Weekly, July 20th, 2026