Prominent Pakistani businessman Arif Habib has indicated that the government is poised to negotiate with the IMF for reductions in business taxation rates.
The objective is to alleviate the heavy tax load that discourages investment and hampers economic expansion.
Burden of Layered Taxes on Businesses
Habib pointed out that businesses face an effective tax rate of 62-65% when combining corporate tax at 29%, super tax, inter-corporate dividend tax, dividend tax, and Section 7E on property income.
These multiple impositions, he argued, are a major deterrent to both domestic and foreign investors, contributing to persistently low FDI levels in the economy.
Specific Reduction Proposals
In discussions with high-level officials, including the prime minister and FBR chairman, Habib learned of plans to approach the IMF for relief.
He suggested targeted changes: dropping corporate tax to 27%, eliminating inter-corporate dividend tax, abolishing certain provisions like Section 73, and lowering GST from 18% to 15%. He also called for a single-digit policy rate and stronger security to restore investor trust.
Leveraging IMF Program Flexibility
Under the ongoing $7 billion EFF, Pakistan must align fiscal policies with IMF guidelines.
Recent overachievement on primary surplus targets offers potential room to propose a lower benchmark, generating fiscal space to accommodate tax relief without derailing the program.
This approach seeks to foster growth while honoring international obligations.
Potential Economic Benefits
Lower taxes could encourage business expansion, improve competitiveness, and attract capital inflows critical for long-term stability.
Habib shared these insights at the Karachi Literature Festival, underscoring the link between institutional reforms and economic performance.