Pakistan mulls easing corporate tax burden to boost investor confidence, including in the Gulf

• Senior coordinator of SIFC says current 50 percent effective tax burden is “choking” firms and deterring reinvestment
• Gulf investors seek bankable partnerships in Pakistan but await policy clarity on taxes and costs, SIFC official says 

ISLAMABAD: Pakistan is considering sweeping changes to its corporate tax regime, including scrapping a controversial super tax and reducing the headline rate to around 25 percent, as it seeks to make the country more competitive for both domestic and foreign investors, including deep-pocketed funds from GCC countries, a senior official said on Thursday.

The proposals come as Pakistan remains under a $7 billion IMF program that emphasizes revenue generation and fiscal consolidation. Any reduction in corporate taxes would require careful balancing against these commitments. But officials argue that Pakistan’s effective corporate tax burden, nearing 50 percent when super tax, workforce taxes and dividend levies are combined, has made local firms uncompetitive and limited the country’s ability to attract new foreign investment, including from Gulf sovereign wealth funds that are actively exploring partnerships in Pakistan’s mining, agriculture, logistics and energy sectors.

Addressing an event organized by the Pakistan Business Council (PBC), Lt. Gen. Sarfaraz Ahmad, SIFC’s national coordinator, said Pakistan’s existing tax structure was “choking” business activity and could not continue.

“Unfortunately, we have made a mess of our fiscal situation very badly. The only thing we can think about is taxation and you guys are the easiest prey,” he said. “But business as usual cannot continue like this.”

He noted Pakistan’s effective tax rate on corporates reached levels that made growth impossible.

“There is 29 percent corporate tax rate, 10 percent super tax, 7–8 percent tax on the workforce, and then dividend and income taxes,” he said.

“This excessive taxation format cannot take Pakistan forward, so we have to correct it.”

Ahmad said there was consensus within the government’s economic team that the regime must be reformed, including eliminating super tax, introduced as an emergency measure, and reducing the headline corporate rate.

“I think we have to seriously look at super tax. It was an ad-hoc arrangement… we need to get rid of it,” he said.

“We need to reduce the corporate tax. Twenty-nine percent may not be competitive. We may have to bring it to 25 percent.”

He added that inter-corporate tax must be “eliminated” because it discourages expansion and consolidation within industries.

Ahmad said investors in Saudi Arabia, the UAE, Qatar and Kuwait were seeking Pakistani partners but needed a pipeline of credible, bankable projects.

“There are investors in GCC – especially Saudi Arabia, UAE, Qatar, Kuwait – who really tell us that you have to pinpoint which partner we have to take. So we have the money, so you tell us which project you want,” he said.

He also urged local businesses to bring concrete proposals to the SIFC.

“If you have a project and you think it is as per policy and in the better interest of Pakistan and you need help, I am the person you need to go to. I will walk with you in the entire process.”

Pakistan has signed several investment MoUs with Gulf countries in recent years, though progress has been slow, partly due to policy uncertainty, energy costs and high interest rates.

Acknowledging the state’s failure to provide a stable business environment, Ahmad also challenged corporate leaders on low domestic reinvestment levels.

“Pakistani capital, earned from Pakistan, often lands in Dubai, London, Singapore, New York. Hardly anything gets reinvested here,” he said.

“Hardly anything is invested here in terms of R&D, in terms of compliance, in terms of infrastructure.”

He said Pakistan’s 240 million-strong population created a large consumption market, but the country now needed to shift toward export-led growth and higher productivity.

Business leaders pressed Ahmad on why known structural issues like high taxes, high energy tariffs, and record interest rates remained unaddressed. He agreed that foreign and local investors could not return without fixing all three simultaneously.

“Without fixing these three things (tax rate, interest rate, energy prices), we cannot go anywhere, nor can we make any investment,” he said.

“If we don’t do this, then we will perish.”

He added that the government machinery was “convinced” that reforms must now be executed.

GOOD VS BAD FDI

Pakistan’s net annual foreign direct investment stands around $1.2 billion. Ahmad said the country must raise this to $2.5–3 billion but avoid investment models that drain foreign exchange through large dividend outflows.

“In the past, investment in Pakistan was made in the power sector and the dividend went out of Pakistan. So we need to actually differentiate between good and bad FDI ... I feel that any FDI which does not yield dollars should be recognized as a bad FDI.”

He added that foreign investment would not arrive unless domestic business confidence improved first.

“Till the time you people don’t invest in Pakistan, who will invest from abroad?”

Ahmad said SIFC was working across three tracks, identifying projects, pushing policy changes and fast-tracking approvals, with the prime minister, army chief and all chief ministers directly involved.

He invited corporate leaders to help populate special economic zones (SEZs), noting that 66 percent of SEZ land in Karachi, Lahore, Sheikhupura and Faisalabad remained vacant.

He also criticized negative narratives at home and abroad that, he argued, hurt investor sentiment, a comment that was a veiled reference to political divisions in the country since the ouster of former prime minister Imran Khan in a no-trust vote in 2022. Khan, arguably the country’s most popular leader, has been jailed since Aug. 2023 in a slew of cases he and his party say are politically motivated.

Khan’s supporters have blamed his removal from office on Pakistan’s powerful army. The military, which has ruled the country for nearly half of its history, says it no longer meddles in politics.

Ahmad urged investors to look beyond such “short-term turbulence.”

“Pakistan is located in the center of the globe. East and West connectivity is there. North and South connectivity is there,” he said.

“You name any big corridor of the world, we are right in the center of it. You may like us, you may not like us, but you cannot avoid us.”