The Pakistan Business Council (PBC) has voiced significant apprehension regarding the current 18% General Sales Tax (GST) rate, asserting that it strongly encourages tax evasion within the country’s largely undocumented economy.
In their official tax recommendations submitted for the upcoming fiscal year 2025-26 federal budget, the PBC emphasized that an 18% GST is particularly detrimental given the prevalence of informal businesses. The council argues that this elevated tax rate motivates businesses to operate outside the formal tax system, thereby hindering the growth of the documented economy and reducing the overall tax revenue.
The PBC also highlighted the considerable tax burden faced by the corporate sector in Pakistan. With an effective tax rate reaching 48%, the council suggests that Pakistan is becoming less attractive to both domestic and international investors. They contend that a reduction in the corporate tax rate would better position Pakistan alongside other developing nations and enhance its competitive edge.
Among its primary recommendations, the PBC proposed a gradual decrease in the GST rate, suggesting an annual reduction of 1% until it reaches 15%. The council believes this measure would diminish the incentive for tax evasion and encourage more businesses to enter the formal tax system.
Furthermore, the PBC criticized the existing system of taxing dividends multiple times within corporate group structures. They argue this discourages companies from consolidating and diversifying their operations. The removal of this disincentive, according to the PBC, could stimulate growth in the capital markets and broaden corporate ownership.
The organization also addressed the substantial tax burden on salaried individuals, linking it to an increasing trend of skilled professionals leaving the country. With a combined tax rate of 29% for income tax, 10% for super tax, and 15% for dividend tax on individual income, the PBC contends that the current tax structure compels skilled workers to seek opportunities abroad or transition to the informal sector.
As part of their proposals, the PBC urged the government to revise income tax brackets to account for inflation and alleviate the overall tax burden on salaried employees. The council’s message is clear: a lower GST rate, rationalized corporate taxes, and fairer individual taxation are crucial to reversing the trends of tax evasion and the loss of skilled talent from Pakistan.
