Islamabad, March 25: The Pakistan Business Council (PBC) is advocating for a reduction in the Goods and Services Tax (GST) rate as part of the FY26 Budget proposals.
They suggest that a gradual reduction in the GST rate would ease the financial burden on businesses, especially given the ongoing economic challenges.
Additionally, the PBC is recommending the reduction of withholding taxes for exporters to help minimize the impact on their cash flow, which has been a significant concern for the business community.
By lowering the withholding tax rates, exporters would have more liquidity, which could enable them to operate more effectively and boost the competitiveness of Pakistan’s export sector.
The aim is to create a more favorable environment for businesses to grow and recover from the economic strain they’ve faced.
This proposal underscores the business sector’s push for measures that would enhance economic activity and facilitate smoother cash flows, particularly for industries like export that play a vital role in Pakistan’s economy.
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The Pakistan Business Council (PBC) has outlined a comprehensive set of budget proposals aimed at addressing the country’s fiscal challenges, particularly those affecting businesses and the economy. Here are the key points from the proposals:
Gradual Reduction in GST: PBC strongly recommends that the Federal Board of Revenue (FBR) gradually reduce the General Sales Tax (GST) rate by 1% annually until it reaches 15%. They argue that the current 18% GST rate, combined with a largely undocumented economy, incentivizes tax evasion.
Withholding Tax Reduction for Exporters: To help improve cash flow for exporters, the PBC calls for a reduction in withholding taxes. This measure is seen as essential for supporting Pakistan’s export sector and making businesses more competitive.
Corporate Tax Rate Adjustment: The PBC proposes gradually reducing the corporate tax rate by 1% annually, bringing it down to 25%, in line with other emerging markets. The current effective tax rate of 48% on the corporate sector is seen as making Pakistan an unattractive investment destination.
Addressing Multiple Taxation on Dividends: The PBC suggests eliminating multiple taxation on dividends within corporate group structures. This would promote consolidation, diversification, and the growth of the capital market.
Relief for Salaried Employees: The PBC recommends reducing the tax burden on salaried employees to address the brain drain and prevent the exodus of talent to the informal sector or abroad. They note that salaried employees in Pakistan currently pay significantly higher taxes compared to their counterparts in India.
Focus on Economic Revival: A major focus of the PBC’s proposals is the revival of key sectors such as manufacturing, agriculture, and services. This would be supported by formalizing the economy and addressing the flaws in the current tax system.
Taxpayer-Friendly Reforms: The PBC stresses that the FBR should focus more on bringing in new and low taxpayers rather than continuing to burden existing taxpayers with complex processes, audits, and delayed tax refunds.
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Separation of Policymaking from Tax Collection: The PBC advocates for the separation of tax policy and collection, suggesting that including key ministries and the private sector on the Policy Board would help ensure the continuity of fiscal policies that encourage growth.
Criticism of Current Tax System: The PBC criticizes several aspects of Pakistan’s tax system, including:
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- Taxing Turnover Instead of Profit: The reliance on taxing turnover rather than profit is seen as unfair to loss-making businesses and well-governed companies.
- Imposition of Multiple Dividends Taxation: The current structure discourages corporate group formation and investment.
- Capital Gains Tax on Share Disposal: The removal of the holding period for capital gains tax discourages long-term investment in listed companies.
- Tax Burden on Banks: The failed attempt to impose taxes on banks not meeting the 50% advance-to-deposit ratio (ADR) is seen as detrimental to the private sector lending.
- Capital Value Tax on Overseas Assets: The PBC critiques the imposition of this tax, which has led to wealthy individuals leaving the country without significantly increasing tax revenue.
- Taxation on Internet Connectivity: The indiscriminate taxation of internet services is harming the growth of the knowledge economy.
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Need for a Long-Term Fiscal Policy: The PBC stresses that simply increasing the tax-to-GDP ratio without a coherent, long-term fiscal policy will not yield sustainable economic growth. They call for a phased reform agenda that takes into account the country’s long-term needs rather than short-term fiscal targets.
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Phased Reform Agenda: Acknowledging the limitations imposed by the IMF program, the PBC suggests that reforms be introduced gradually to align Pakistan’s fiscal and tax policy with the country’s development goals.
In summary, the PBC is calling for a series of fiscal and tax reforms aimed at stimulating business activity, promoting investment, and addressing the structural flaws in Pakistan’s economy. These proposals seek to foster a more competitive, transparent, and growth-oriented environment.
