'Punitive' taxes hurt growth

The Pakistan Business Forum (PBF) has raised serious concern over sustainability of the private sector in the face of persistent policy instability and one of the highest corporate tax regimes in the region.

In an interaction with the media, PBF President Khawaja Mahboobur Rehman emphasised that the private sector could not thrive under erratic policy frameworks and punitive taxation, which were among the leading causes behind declining investor confidence and stagnating business growth.

According to Rehman, the corporate sector is being disproportionately burdened by an effective tax rate of 45%, including the controversial 10% super tax.

This super tax was initially introduced as a temporary fiscal measure, but over time it appears to have become a permanent feature – an additional tax in disguise, he stated and stressed that this form of unpredictable and excessive taxation undermines corporate planning, hinders expansion and erodes business competitiveness, both locally and internationally.

Rehman argued that if this trend of aggressive tax collection continues, it will severely discourage foreign direct investment. "The very rationale behind strategic initiatives such as the Special Investment Facilitation Council (SIFC) and the Board of Investment (BoI) becomes questionable when the business environment remains fundamentally unattractive to both domestic and international investors," he added.

"Without addressing the core disincentives – chief among them an uncompetitive tax regime – such bodies will fail to deliver meaningful economic outcomes."

Currently, Pakistan's corporate tax burden exceeds that of several advanced economies. For instance, the United Kingdom has a corporate tax rate of 25%, while the United States has a base federal corporate tax rate of 21%, which may increase marginally with state taxes. Pakistan's combined tax impact, including additional levies and sector-specific surcharges, puts local businesses at a severe disadvantage when trying to compete on a global stage.

In addition, the structure of taxation in Pakistan is often criticised for being overly reliant on indirect taxes and placing undue burden on the formal sector, while large parts of the informal economy remain under-taxed or completely outside the tax net. This imbalance not only disincentivises documentation but also creates an uneven playing field.