The Pakistan Business Council (PBC) has unveiled its comprehensive budget recommendations for the fiscal year 2025-26, emphasizing seven strategic imperatives to optimize fiscal policy.
These proposals target sustainable economic growth, equitable tax distribution, and support for industries where Pakistan holds a comparative advantage. Here is a detailed breakdown of the PBC’s recommendations and strategies for achieving long-term fiscal stability and growth.
The PBC recommends a 2% annual reduction in the super tax rate on non-export profits. To make the tax system more progressive, super tax should be levied on a slab-based model, targeting higher income earners proportionately.
Imperatives for Fiscal Policy
The PBC has laid out seven key pillars that should underpin fiscal policy for 2025-26:
- Equitable Distribution of Tax Burden
Ensure fairness by balancing tax responsibilities across all economic sectors. - Levy Taxes at Competitive Rates
Encourage investment by maintaining tax rates in line with regional competitors. - Provide Long-Term Policy Predictability
Investors require consistent and predictable fiscal policies to make long-term commitments. - Tax Profit, Not Turnover or Assets
Profit-based taxation fosters a business-friendly environment while avoiding undue stress on companies with low margins. - Simplify, Unify, Harmonize, and Digitize Tax Returns
Streamlined tax systems reduce compliance costs and improve efficiency. - Minimize Impact on Business Cash Flow
Tax systems should support businesses by allowing smoother financial management without excessive cash flow constraints.
To stimulate investment, PBC suggests corporatization and listing incentives, encouraging scale, diversification, and long-term shareholding. Policies should aim to promote export-oriented industries and reduce reliance on imports.
Reducing the Super Tax and Streamlining Taxation
All resident tax return filers should submit comprehensive wealth reconciliations, ensuring transparency and accountability.
The formal sector should only be responsible for verifying the tax credentials of direct suppliers and customers registered on the Federal Board of Revenue (FBR) portal. Overburdening businesses with unnecessary compliance requirements must be avoided.
The PBC recommends phasing out minimum turnover taxes for listed companies. Taxing turnover instead of profits disproportionately impacts industries with low profit margins, stifling growth. Future taxation should also avoid reliance on bank or corporate balance sheets.
The PBC proposes taxing gains from the sale of land at 39% for properties sold within ten years of purchase. For properties held beyond ten years, a reduced rate of 15% should apply. The current flat tax rate of 15% regardless of the holding period does not adequately discourage speculative investments.
Capital Gains Tax on Land Sales
The PBC recommends that the FBR enter into Electronic Data Interface (EDI) arrangements with major trading partners to enhance transparency and reduce revenue leakage.
Tax systems should be harmonized and digitized to ensure efficiency. Simplified tax filing procedures will minimize compliance costs for businesses, encouraging broader participation in the formal economy.
To increase compliance, a 39% advance tax should be levied on electricity and gas bills of non-filer industrial and commercial customers. Non-compliant entities should face utility disconnections as a deterrent.
The PBC suggests a 1% annual reduction in the General Sales Tax (GST) rate until it reaches 15%, fostering consumer confidence and stimulating demand.
The FBR should focus on taxing income rather than declared overseas assets of Pakistan’s tax residents. This shift ensures fairness and avoids penalizing legitimate overseas earnings.
