LAHORE: With the government finalising the details of next year’s budget, the Overseas Investors Chamber of Commerce and Industry (OICCI) has, in a last-minute call, demanded that the fiscal authorities provide substantial relief to the salaried class and the corporate sector, which are groaning under crushing taxes — both direct and indirect.
In a Zoom interview with Dawn, OICCI Chief Executive M. Abdul Aleem described the country’s current tax structure as inequitable and unjust, and in urgent need of sweeping reforms aimed at broadening the tax base.
“Both the salaried individuals and the compliant corporate sector have borne a disproportionate share of tax burden for far too long. It is compelling the talent to leave Pakistan while putting a huge drag on investment, export and economic growth,” he argued.
“Enough is enough; this cannot go on any longer. Something’s got to give. With its expenditure, particularly on defence, rising, the nation’s tax structure would have to be overhauled and the base of taxes increased to offload pressure on the compliant existing taxpayers if the state of Pakistan is to survive.”
Demands bringing real estate, retail, agriculture, professionals in tax net
The OICCI, which represents over 200 multinational companies operating in Pakistan, has submitted a series of comprehensive tax recommendations to the government, which, if adopted, could reshape the tax policy, broaden the tax net, bring transparency and fairness in the tax distribution, as well as encourage investment.
At the centre of its recommendations is a proposal to double the taxable income threshold to Rs1.2m, with a nominal flat tax of Rs1,000 on those earning between Rs600,000 and Rs1.2m, to widen the tax base without overburdening low-income earners, while also mandating the filing of tax returns.
It further calls for the elimination of a 10pc income tax surcharge levied on tax-compliant individuals earning over Rs10m annually, dubbing it as a “tax on tax”. “The surcharge penalises compliant taxpayers while leaving much of the undocumented economy untouched,” Mr Aleem argued.
Furthermore, the chamber has recommended the restoration of a tax credit on individual investments in mutual funds, IPOs, and life insurance, as well as the reinstatement of deductible allowances for housing loans, education, and medical expenses.
Pakistan has long struggled with a narrow tax base and a tax-to-GDP ratio of below 10pc — one of the lowest in the region and the world —, with only a fraction of 240m citizens filing their annual tax returns, most of them showing nil income though.
Much of the burden falls on the corporate sector and salaried workers while large segments of the economy — including retail, real estate, agriculture, and professionals such as doctors, lawyers and others effectively remain outside the tax net.
A media report suggests that the personal income tax of Rs437bn collected from salaried individuals during 10MFY25 is more than 50pc greater than what the FBR had raked in during the same period last year. Likewise, the industry and manufacturing contribute nearly 60pc of the total tax revenues against their 18pc share in the GDP.
Although top government officials, including Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb, have pledged multiple times to tax every income regardless of its source, no credible effort has been made to broaden the tax base and bring powerful lobbies into the net.
The Tajir Dost Scheme, introduced to collect Rs50bn in taxes from traders, has miserably failed, as it has raked in less than Rs4m.
The other key OICCI recommendations suggest a gradual reduction in the corporate tax rate in three years from 28pc to 25pc through an annual 1pc reduction to align with the other emerging economies and the abolition of super tax to reduce the financial burden and improve business competitiveness.
To broaden the tax base, it has called for automation and enhancing transparency, phasing out of Fata/Pata tax exemptions, implementation of a robust track and trace system and enforcement of strict penalties on illicit tobacco trade, which causes a loss over Rs300bn to the national exchequer, monthly disclosure of list of people/organisation getting tax refunds from the FBR for enhancing transparency, publish import data to curb under-invoicing, demonetisation of Rs5,000 note to discourage cash economy and so on.
It has also called for tax incentives to promote investment, encourage sustainability, listings on the stock exchange, boost exports, etc. Moreover, it has demanded a reduction in sales tax rates on goods to align them with the regional average and harmonise the provincial rates accordingly.
Mr Aleem said that no progress had been made on broadening the tax base in the last two years. The IMF is rightly concerned about the government’s tax collection efforts (to meet the broader primary surplus target of 1.6pc of GDP next year) if it still resists broadening the net, despite a huge scope for it, he maintained.
Published in Dawn, June 7th, 2025
