Prime Minister Shehbaz Sharif has directed a comprehensive review of Pakistan’s high tax rates, citing concerns that excessive taxation is driving away both capital and talent, while failing to boost revenue as intended.
Despite record tax rates, the government missed its revenue target by Rs 276 billion during the first four months (July–October) of the current fiscal year. The prime minister has therefore tasked the Federal Board of Revenue (FBR) with exploring ways to reduce tax burdens and make Pakistan’s tax regime more regionally competitive.
Proposed Reductions
According to initial working papers, the FBR is considering cutting the corporate tax rate from 29% to 25%, reducing the maximum individual tax rate from 45% to 25%, abolishing the 10% super tax, and lowering sales tax from 18% to 15%. Officials estimate these measures could inject Rs1.1 trillion into the economy, improving consumer spending and business confidence.
However, the proposal faces a key challenge: the International Monetary Fund (IMF) may not endorse major tax cuts during the ongoing bailout program. Sources say the plan may only move forward once Pakistan exits the current IMF agreement.
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The Tax Burden Crisis
Experts warned that the tax rates of pk have reached “suffocating” levels. Businesses now pay nearly 60% of their net income in taxes, while salaried individuals—already squeezed by inflation—face the steepest hikes. In the last fiscal year alone, the salaried class paid a record Rs605 billion, a 55% increase from the previous year.
Revenue Trends and Reforms
The FBR collected Rs 3.83 trillion in four months, short of its Rs 4.1 trillion target, mainly due to economic slowdown, low local production, and reduced fuel use. The government has formed a high-level working group on customs, trade, and tariffs, led by prominent businessmen, to propose reforms and curb dumping of foreign goods.
Officials keep on hoping that easing the tax burden will encourage investment, retain skilled workers, and ultimately expand the tax base—rather than shrinking it under pressure.