Minister of State for Finance Bilal Azhar Kayani says digitalisation, retailer formalisation and private-sector engagement are central to Pakistan’s tax reforms.
ISLAMABAD: Minister of State for Finance Bilal Azhar Kayani has said Pakistan is stepping up efforts to broaden its tax base, ease the burden on compliant taxpayers and improve revenue collection through digitalisation and greater engagement with the private sector.
Addressing the High-Level Dialogues on Taxation for Fiscal Sustainability, organised by the Asian Development Bank (ADB) in collaboration with the Government of Pakistan, Kayani said Prime Minister Shehbaz Sharif had given unprecedented attention to reforms at the Federal Board of Revenue (FBR).
He said the prime minister was conducting weekly reviews of the FBR’s transformation, covering both strategic and operational aspects of the reform process.
Kayani highlighted several initiatives, including faceless customs, digital invoicing, track-and-trace systems and a new tax operating model, which are intended to reduce human intervention in tax assessments and audits.
He said the prime minister’s detailed oversight of FBR reforms was aimed at ensuring that the tax authority improved not only revenue collection but also its dealings with taxpayers.
Government seeks to bring more retailers into tax net
Kayani said the government’s new retailers’ tax scheme was a key initiative aimed at bringing more retailers into the formal economy and broadening Pakistan’s narrow tax base.
He said the scheme had been developed following extensive consultations with retailers and their representative organisations, including discussions on why previous attempts to tax the sector had failed.
Retailers had raised concerns about informal payments and sought greater protection from such practices in return for joining the formal tax system, he said.
The government subsequently worked with traders to finalise the scheme’s tax rates, penalties, procedures and documentation, including a simplified one-page form in Urdu, according to the minister.
He said the consultation process had secured support from major trader organisations even before the scheme was formally announced.
Kayani also stressed the need for sustained dialogue between government agencies and the private sector, noting that poor communication had contributed to the failure of some economic reforms in the past.
Tax burden reduced for exporters, businesses and salaried workers
The minister said the government had also taken measures to reduce the tax burden on exporters, small and medium-sized businesses and salaried workers.
He said the super tax rate for businesses earning between Rs150 million and Rs500 million annually, as well as those earning more than Rs500 million, had been reduced by two percentage points from 10% to 8%.
For exporters, the combined rate of advance income tax and minimum tax deducted at source had been reduced from 2% to 1.25%, he said.
The government had also retained the final tax regime for information technology exporters while reducing taxes on salaried taxpayers, which he described as a major priority for the prime minister.
Kayani said salaried workers had historically carried a disproportionate share of the tax burden because their incomes were easier for tax authorities to document and collect.
FBR to adopt centralised, rules-based system
On wider FBR reforms, Kayani said the new tax operating model would centralise and anonymise assessment and audit functions as far as possible.
He said a system-driven and rules-based process would reduce the role of individual tax officials and make tax assessments fairer and more predictable.
“A CRM-driven audit and assessment function, which is anonymised to the extent possible, which is taken away from the field offices and is centralised, will result in fairer treatment of the taxpayer,” he said.
Kayani also highlighted the establishment of exporter facilitation committees in major export centres, including Karachi, Lahore, Sialkot and Faisalabad.
The committees bring together FBR officials and exporters and are intended to provide a regular mechanism for identifying and resolving issues faced by businesses.
The minister said many difficulties experienced by taxpayers and exporters were linked to procedures and administrative mechanisms rather than tax rates.
“Half the friction in the system, including in FBR, is mostly related to processes and mechanisms as opposed to tax rates themselves,” he said.
He said the government was receiving support from development partners, including the ADB, for its wider FBR transformation programme.
The ultimate objective, Kayani said, was not simply to collect more taxes but to establish a tax system that was more transparent, equitable and easier for taxpayers to navigate.
ADB backs Pakistan’s tax reform agenda
Speaking at the event, ADB Vice President for South, Central and West Asia Yingming Yang said tax collection and domestic resource mobilisation were crucial to sustainable development.
He said robust revenue systems enabled governments to invest in people, infrastructure and resilience while reducing dependence on debt.
Addressing challenges such as Pakistan’s narrow tax base, widespread informality and low compliance was vital for fiscal sustainability, Yang said.
He added that Pakistan’s tax reform agenda was gaining momentum and could help increase revenue collection, strengthen documentation of the economy and improve data collection for better policymaking and planning.
Strong revenue collection enables governments to invest in people and provide better public services, including health, education and communications, he said.
Yang said reforms to the revenue collection system could also help Pakistan address its broader fiscal challenges.
He reaffirmed the ADB’s commitment to providing financial and technical assistance, as well as knowledge-sharing, to support Pakistan in modernising its tax administration and transforming its revenue collection system.
The event, he added, would also provide an opportunity to discuss policy mechanisms and share international best practices for broadening the tax base and improving domestic revenue mobilisation.