The Institute of Cost and Management Accountants of Pakistan (ICMAP) has put forth a significant recommendation to reshape the nation’s General Sales Tax (GST) system, proposing the implementation of a flat GST rate specifically designed for mid-sized enterprises.
This proposal forms a key part of ICMAP’s comprehensive tax recommendations submitted for consideration in the upcoming fiscal budget for 2025-26.
Simplified System for Mid-Tier Growth
In its detailed submission to the Federal Board of Revenue (FBR), ICMAP suggested that businesses demonstrating quarterly sales exceeding six million rupees but remaining below forty million rupees should be brought under the GST umbrella through a streamlined and consistent approach. Instead of navigating the complexities of varied tax rates and intricate procedures, ICMAP is advocating for a uniform flat GST rate of just 1% on the total sales generated by these mid-tier businesses.
Boosting Transparency and Curbing Evasion
ICMAP argues that integrating these currently often informal businesses into the formal GST structure would serve the dual purpose of significantly reducing prevalent tax evasion and fostering greater transparency and fairness throughout the entire supply chain. “Introducing a flat GST mechanism will effectively capture segments that are currently either untaxed or significantly under-reported, thereby broadening the national tax base and establishing a more equitable competitive landscape for all businesses,” the institute stated in its proposal.
Encouraging Formalization and Improving Collection
The accounting body further emphasized that the existing fragmented and excessively complex tax environment acts as a deterrent for smaller and medium-sized enterprises to formally register, consequently exacerbating the issue of informality within the national economy. By simplifying the compliance process through the introduction of a flat GST rate, ICMAP believes it would incentivize voluntary registration among these businesses, leading to a substantial improvement in overall tax collection efficiency.
Significant Revenue and GDP Growth Potential
ICMAP estimates that the successful integration of the entire business value chain into the GST framework, facilitated by this simplified flat rate for mid-tier enterprises, could potentially generate an additional PKR 10-15 billion in tax revenue annually. This projection is grounded in Pakistan’s current tax-to-GDP ratio, the substantial scale of the informal economy, and the anticipated surge in compliance levels driven by the proposed simplification.
Furthermore, ICMAP highlighted the potential for formalizing these mid-tier businesses through such a policy to contribute an estimated 0.1 to 0.2 percentage points to the nation’s GDP growth. The anticipated benefits include improved business documentation practices, enhanced confidence among investors, and greater overall fiscal stability for the country.
Advocating for Pragmatic Tax Reform
With this forward-thinking proposal, ICMAP has firmly positioned itself as a leading advocate for pragmatic and impactful tax reforms. The institute’s recommendations are strategically aimed at bridging the persistent gap between the formal and informal sectors of the economy while simultaneously bolstering much-needed national revenue streams.
