Karachi, April 14, 2025 – The Pakistan Business Council (PBC) has raised serious concerns over the impact of the current 18% General Sales Tax (GST), stating that such a high rate in a largely undocumented economy creates a powerful incentive for tax evasion.
In its formal tax proposals for the upcoming 2025-26 federal budget, the PBC highlighted how an 18% GST is particularly damaging in an environment where informal businesses already dominate the market. According to the PBC, the elevated GST encourages businesses to remain outside the formal net, thereby shrinking the documented economy and eroding the tax base.
The PBC also drew attention to the heavy taxation burden on the corporate sector. With an effective tax rate of 48%, Pakistan is seen as an unattractive destination for both local and foreign investors. The council argued that reducing the corporate tax rate would align Pakistan with other emerging economies and enhance competitiveness.
Among its key recommendations, the PBC proposed a gradual reduction in GST, suggesting that the rate be cut by 1% annually until it reaches 15%. This step, the council believes, would reduce the incentive to evade and bring more businesses into the tax net.
Additionally, the PBC criticized the multiple taxation of dividends within group structures, which it said discourages companies from consolidating and diversifying. By removing this disincentive, the government could foster growth in the capital markets and broaden corporate ownership.
The organization also addressed the high tax burden on salaried individuals, which it linked to a growing brain drain. With a combined tax of 29% income tax, 10% super tax, and 15% dividend tax on individual income, the PBC argued that the current structure pushes skilled professionals to either move abroad or shift to the informal economy.
As part of its proposal, the PBC urged the government to revise income tax slabs to reflect inflation and reduce the overall burden on the salaried class. The call for reform was clear: a lower GST, rational corporate taxes, and fairer individual taxation are key to reversing the trends of tax evasion and talent loss.