Pakistan’s high taxation regime is suffocating the formal economy, particularly industrial businesses, with the Federal Bureau of Revenue (FBR) seemingly unaware of the impact on the top 1% of the population. The effective tax rate, exceeding 50% for large manufacturing facilities, discourages capital formation, as highlighted in the Karachi-based Business Recorder.
Shareholders face even higher taxes in corporate structures, with a 15% tax on intercorporate dividends, reducing net profits to a third after all taxes. The country witnesses financial and human capital flight, with salaried taxes in Pakistan being among the highest in the region, leading to increased investments in the Middle East, notably the UAE.
High-net-worth Pakistani residents endure income tax rates of up to 45%, an additional super tax of up to 10%, and a 1% capital value tax on certain foreign assets. This tax burden prompts some individuals, including business magnates, to relocate to tax-friendly destinations like Dubai. The issue of oppressive taxation was raised by Pakistan’s business chambers during discussions with an IMF team visiting the country.
The excessive tax burden, highlighted by apex business chambers, has led to the exodus of multinational corporations from Pakistan. The taxation system has also driven domestic groups towards real estate and retail businesses, where income can be concealed and moved out of the country. To address these challenges, the government is urged to lower tax rates, broaden the tax base, and enhance tax collection efficiency.
