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PBC criticises complex tax system, calls for gradual sales tax reduction

PBC criticises complex tax system, calls for gradual sales tax reduction

Web Desk
Mar 25, 2025

ISLAMABAD: The Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to reduce the general sales tax (GST) by 1 per cent annually until it reaches 15 per cent, arguing that the current 18 per cent rate encourages tax evasion.

The PBC also proposed lowering withholding taxes for exporters to ease cash flow pressures, noting that Pakistan’s 48 per cent corporate tax rate makes it unattractive for investment.

The council recommended simplifying taxes on inter-corporate dividends to encourage businesses to consolidate and diversify. It also advised reducing the corporate tax rate by 1 per cent annually until it reaches 25 per cent, aligning with other emerging economies.

Reducing taxes on salaried employees is necessary, according to the PBC, to combat brain drain as many skilled workers seek opportunities abroad or in the informal sector.

The PBC criticised the FBR’s focus on heavily auditing high taxpayers while ignoring the need to broaden the tax base by bringing in new and lower-tier taxpayers. It suggested separating tax policymaking from collection processes and involving the private sector in decision-making.

Additionally, the PBC raised concerns about the flawed tax system, which taxes turnover rather than profit, disproportionately affecting loss-making businesses. The council also criticised multiple stages of dividend taxation within corporate groups, which hinders business growth and discourages listing on the Pakistan Stock Exchange.

The PBC highlighted the negative impact of the Capital Value Tax on declared overseas assets, which is prompting wealthy individuals to leave Pakistan. It also called out excessive taxation on cellular and internet services for slowing the growth of the knowledge economy.

The PBC called for a more integrated fiscal policy that focuses on long-term economic growth rather than short-term targets driven by the International Monetary Fund (IMF) programme, suggesting a phased reform approach to address the current system’s weaknesses.