PBC’s Recommendations for a Sustainable Tax System
The Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to reduce the General Sales Tax (GST) rate by 1% annually until it reaches 15%, citing that the current 18% GST rate encourages tax evasion in Pakistan’s undocumented economy.
Key Budget Proposals for FY26
In its budget proposals for FY26, the PBC has suggested several tax reforms aimed at boosting economic growth, improving business sustainability, and attracting investment:
✅ 1. Gradual Reduction in General Sales Tax (GST)
- PBC proposes reducing GST from 18% to 15% over the next few years.
- This move aims to increase compliance and reduce the burden on consumers and businesses.
✅ 2. Reduction in Withholding Taxes for Exporters
- High withholding taxes restrict cash flow and hinder exports.
- Lowering these taxes can improve business liquidity and increase Pakistan’s exports.
✅ 3. Lowering the Corporate Tax Rate
- PBC suggests reducing corporate tax by 1% per year until it reaches 25%.
- This will make Pakistan’s tax rates competitive with other emerging economies, attracting foreign direct investment (FDI).
✅ 4. Reforming Taxation on Inter-Corporate Dividends
- Multiple taxes on dividends discourage corporate expansion, diversification, and stock market growth.
- PBC recommends removing double taxation to encourage business consolidation and investment.
✅ 5. Addressing the Heavy Tax Burden on Salaried Employees
- Pakistan’s salaried class pays higher taxes than India, leading to brain drain.
- PBC calls for fairer tax structures to retain skilled professionals in Pakistan.
Structural Flaws in the Current Tax System
PBC has criticized the existing tax system, highlighting several major challenges:
📌 Narrow Tax Base – Instead of broadening the tax net, FBR focuses on auditing existing taxpayers, discouraging businesses and investments.
📌 Turnover-Based Taxation – Taxing revenue instead of profits puts an unfair burden on loss-making companies.
📌 Delayed Tax Refunds – The withholding of refunds impacts cash flow, reducing business efficiency.
📌 Taxes on Digital Connectivity – Imposing taxes on internet and digital services hinders innovation and economic growth.
The Need for Tax Reforms in Pakistan
With Pakistan’s economy struggling under IMF constraints, PBC has emphasized the need for a long-term, phased tax reform strategy. It recommends:
✔ Separating tax policymaking from tax collection to ensure growth-driven tax policies.
✔ Forming a Policy Board including key ministries and private sector representatives for better tax planning.
✔ Creating a predictable and business-friendly tax environment to attract local and foreign investors.
Final Thoughts
The PBC’s recommendations, if implemented, could create a pro-business tax framework, boost Pakistan’s economy, and reduce reliance on external loans. By focusing on broadening the tax base, lowering GST, and easing corporate taxes, the government can ensure sustainable economic growth and fiscal stability.
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