In a comprehensive set of proposals submitted to Deputy Prime Minister Ishaq Dar and Finance Minister Muhammad Aurangzeb, prominent tax advisory firm has recommended scrapping the largely ineffective “Tajir Dost” scheme. Instead, the firm advocates for the imposition of a 1% minimum income tax on all traders to ensure more equitable tax collection across the sector.
Firm highlighted the significant failure of the Tajir Dost scheme, which was launched last year with an ambitious target of Rs50 billion but has only managed to collect a meager Rs4 million, according to a recent International Monetary Fund (IMF) staff-level report. This stark contrast is evident when compared to the salaried class, which contributed a hefty Rs437 billion in income tax during the first 10 months of the current fiscal year.
To curb pervasive tax evasion and actively reduce the size of the informal economy, the firm proposed that cash transactions at retail and food outlets be capped between Rs5,000 and Rs10,000, making electronic payments mandatory for larger transactions. However, the firm acknowledged the Federal Board of Revenue’s (FBR) limited enforcement capacity to effectively implement such a restriction nationwide.
Currency Stability and Export-Led Growth
Firm further recommended that the upcoming 2025–26 federal budget explicitly avoid currency devaluation. Instead, it urged the government to focus on strengthening the Pakistani rupee through concerted efforts in import substitution, boosting local manufacturing, achieving energy independence, and increasing domestic value addition across industries. The firm emphatically stressed that sustained economic stability hinges critically on a stable exchange rate and effectively targeted inflation control.
According to the firm’s estimates, if the current account deficit remains at 0.5% of GDP, the exchange rate should stabilize around Rs276 per US dollar. However, it cautioned that without decisive measures, the rupee could weaken further to Rs290–295 in the next fiscal year, potentially resulting in an inflationary impact of up to 3%. The government has already framed the budget using an assumed exchange rate of Rs290 per dollar.
For promoting export-led growth, Tola Associates suggested several key policies, including rationalizing industrial interest rates, maintaining a balanced tariff regime on raw materials to support local industries, and establishing dedicated export-oriented industrial clusters. It underscored the crucial importance of offering performance-based subsidies in key sectors such as textiles, pharmaceuticals, and engineering to ensure their long-term sustainability and competitiveness in global markets.
Industrial Expansion and Tax Collection Outlook
To further stimulate industrial expansion, the firm called for a deeper cut in the policy rate, which currently stands at 11%. It also strongly urged the government to introduce zero-markup loan schemes specifically for capital-intensive manufacturing units. These concessional loans, the firm argued, would be instrumental in helping revive idle industrial capacity, generate much-needed employment opportunities, and significantly improve overall industrial competitiveness.
Looking ahead to the next fiscal year, Tola Associates expressed skepticism over the FBR’s ability to achieve the ambitious Rs14.1 trillion tax target, projecting actual collections to be closer to Rs13.5 trillion. For the current year, it expects tax revenue to fall short of the original target of Rs12.9 trillion, estimating it to end at Rs11.9 trillion, unless favorable court outcomes in super tax cases push collections to Rs12.1 trillion.
Other Fiscal and Residency Suggestions
Among other fiscal suggestions, the firm recommended the imposition of an advance tax on undistributed reserves of companies that have failed to issue dividends for three consecutive years. It proposed a rate of 7.5% for unlisted firms and 5% for listed companies, with adjustments allowed against future dividend tax liabilities.
Firm also advocated for updating Pakistan’s definition of tax residency to more accurately reflect actual economic presence. Under its proposed framework, individuals spending 182 days or more in Pakistan in a financial year would automatically be considered tax residents. Those staying between 120–181 days would be assessed based on their income and citizenship status, potentially qualifying as “Resident but Not Ordinarily Resident (RNOR).” Individuals present for fewer than 120 days would be treated as non-residents, irrespective of their nationality or income level.
