Pakistan has been grappling with a stagnant economy, slow growth, and a shrinking tax base, which can be attributed to its archaic tax system. The Federal Budget 2025-26 presents an opportunity for the government to implement comprehensive tax reforms that can boost economic growth, create jobs, and increase revenue. The Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested its recommendations for the Federal Budget 2025-26, outlining a clear roadmap for tax reform aimed at broadening the tax base, improving compliance, facilitating investment, and enhancing the Federal Revenue Board’s (FBR) revenue generation. A more equitable contribution across all sectors, proportionate to their share of GDP, could increase the tax-to-GDP ratio to approximately 14 percent, which currently stands at less than 10 percent. This can be achieved by implementing a more progressive tax structure, where higher-income earners are taxed at a higher rate. Key Recommendations:
- Reduce the Corporate Tax Rate to 28 percent for FY 2025-26, with a structured plan to lower it by one percent annually, reaching 25 percent within five years.
- Bring traditionally under-taxed sectors – agriculture, real estate, and wholesale/retail trade – into the formal tax net.
- Reduce the sales tax rate on goods to 17 percent immediately, followed by a gradual one percent annual reduction to bring it down to 15 percent, matching the regional average.
- Gradually abolish the Super Tax within three years, creating a more predictable and business-friendly fiscal environment.
- Implement strict enforcement measures to plug the significant revenue leakage caused by the illegal cigarette trade.
The OICCI also recommends increasing the taxable income threshold to Rs1.2 million annually per individual, while maintaining mandatory tax filing for all income earners earning in excess of Rs0.6 million. This will help to encourage more individuals to file their tax returns, thereby increasing the tax base. The Chamber further emphasizes the importance of harmonizing sales tax rates between the federal and provincial governments, simplifying compliance and encouraging business growth.
| Benefits of Harmonization | • Simplified compliance for businesses | • Encourages business growth and investment |
| Challenges of Harmonization | • Requires significant policy changes | • May lead to revenue shortfalls if not implemented correctly |
The OICCI President, Yousaf Hussain, emphasizes the need for Pakistan to modernize its tax system. “Our proposals are focused on creating a transparent, predictable, and equitable taxation framework that encourages economic growth, investment, and job creation,” he said. In the energy sector, the OICCI recommends that all major petroleum products be treated as taxable supplies at the appropriate sales tax rates, ensuring a fairer and broader tax contribution from the sector. The OICCI Secretary General, M. Abdul Aleem, added, “With the right reforms and policy consistency, Pakistan can significantly expand its revenue base, restore business confidence, and position itself as a more attractive destination for investment.”
To achieve this goal, the OICCI will continue to support the government in developing policies that promote economic prosperity and sustainable growth.
“Pakistan must act decisively to modernize its tax system,” said Yousaf Hussain. “Our proposals are focused on creating a transparent, predictable, and equitable taxation framework that encourages economic growth, investment, and job creation.”
Key Takeaways:
- • Increased revenue generation
- • Improved compliance and simplified tax structures
- • Encourages economic growth, investment, and job creation
- • Implementing significant policy changes
- • Ensuring revenue shortfalls are avoided
- • Restoring business confidence
- • A more progressive tax structure
- • Increased taxable income threshold for individuals
- • Harmonization of sales tax rates between federal and provincial governments
By implementing these recommendations, Pakistan can take significant steps towards modernizing its tax system, increasing revenue, and promoting economic growth. The OICCI will continue to support the government in developing policies that promote economic prosperity and sustainable growth.