Islamabad: Prime Minister Shehbaz Sharif has directed the Federal Board of Revenue (FBR) to review the possibility of reducing high-income and sales tax rates in an effort to stem the ongoing flight of capital and skilled professionals from the country.
Despite imposing some of the highest tax rates in the region, the government suffered a revenue shortfall of Rs276 billion in the first four months of the fiscal year, prompting calls for a reassessment of the existing taxation framework.
According to government sources, the FBR has been tasked with preparing multiple models to align Pakistan’s tax rates with regional benchmarks. The objective is to encourage companies to retain operations within the country and prevent excessive taxation of individuals and the salaried class.
Preliminary FBR proposals suggest cutting the corporate income tax rate from 29% to 25%, lowering the maximum individual income tax rate from 45% to 25%, abolishing the 10% super tax, ending the 15% inter-corporate dividend tax, and reducing the standard sales tax rate from 18% to 15%.
If implemented, these measures could inject up to Rs1.1 trillion into the economy and households, with the largest impact—over Rs600 billion—expected from the sales tax reduction. However, such a move would significantly affect annual revenue, raising questions about its feasibility under the current International Monetary Fund (IMF) programme.
Sources indicated that the IMF is unlikely to endorse these tax cuts during the ongoing bailout period, although the plan may be considered once the programme concludes. The Fund, however, has also expressed concern over multinational companies exiting Pakistan—an issue contrary to its broader goal of creating an investment-friendly environment.
Tax experts note that businesses currently face an effective tax burden of around 60% of their net income, while also being required to pay advance income tax to help the FBR meet its collection targets. The salaried class has similarly been hit hard, with withholding tax collection from salaries rising by 55% to Rs605.6 billion in the last fiscal year, largely due to fewer tax slabs and higher rates in each bracket.
Officials say the proposed reforms aim to ease this pressure, stimulate investment, and restore competitiveness to Pakistan’s economy—though their implementation remains contingent on fiscal space and IMF approval.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
