KARACHI – Tax practitioners gathered at a pre-budget seminar organized by the Karachi Tax Bar Association (KTBA) have urged the government to consider reducing the corporate tax rate to 25 percent in the upcoming budget for 2021/2022.
The call for a lower tax rate aims to stimulate investment, encourage economic documentation, and align Pakistan’s tax structure with global standards.
During the seminar, tax professionals presented proposals for the upcoming budget, emphasizing the need for a competitive and investor-friendly tax regime. The focus was on the corporate tax rate, which currently stands at 29 percent in the fiscal year 2021. However, due to the inclusion of various levies, such as the 2 percent Workers’ Welfare Fund and the 5 percent Workers’ Participation Fund, the effective rate can climb up to 36 percent.
A comparative analysis presented during the seminar highlighted that the average corporate tax rate in Asia was 21.32 percent in 2020. The disparity between Pakistan’s tax rate and the regional average was identified as a potential obstacle to economic development. The elevated tax rate not only fosters tax evasion but also hampers efforts to document the economy and promote corporatization. Additionally, it acts as a deterrent for both foreign and local investors.
To address these concerns, tax practitioners proposed a gradual reduction in the maximum income tax rate on companies from the current 29 percent to 25 percent. The suggestion involves an annual reduction of 1 percent, allowing businesses to adapt to the changes while fostering a more competitive environment. Furthermore, it was recommended that the tax rate for single-member and small companies be gradually reduced to 22 percent, aligning with rates in other regional and global countries.
The rationale behind the proposal lies in the belief that a more moderate tax structure will not only attract domestic and foreign investment but also facilitate the documentation of economic activities. Lowering the tax burden on businesses is seen as a key strategy to incentivize compliance, discourage tax evasion, and create a conducive environment for sustainable economic growth.
The tax practitioners emphasized that such a tax adjustment would enhance Pakistan’s competitiveness in the global market and make the country more appealing to investors. By aligning with international tax norms, Pakistan can position itself as an attractive destination for businesses seeking stable and transparent tax policies.
As the government prepares for the upcoming budget, the recommendations put forth by tax practitioners underscore the importance of crafting a tax framework that fosters economic growth, encourages investment, and promotes the formalization of economic activities. The call for a lower corporate tax rate reflects a broader effort to create an environment conducive to business expansion and increased participation in the formal economy.
