The Pakistan Business Council (PBC) has proposed significant tax reforms for the upcoming 2025-26 budget, aiming to create a more efficient and business-friendly tax system. The key recommendations focus on separating tax policy from tax collection, establishing a National Tax Authority (NTA), reducing tax burdens on businesses and salaried individuals, and introducing fairer taxation policies.
Taxation plays a crucial role in economic development, and an inefficient tax structure can hinder investment, reduce business competitiveness, and encourage tax evasion. The PBC’s proposed reforms seek to streamline tax compliance, ensure fair tax distribution, and align fiscal policies with economic growth objectives.
2. Separation of Tax Policy from the Federal Board of Revenue (FBR)
Currently, the Federal Board of Revenue (FBR) is responsible for both tax policy formulation and tax collection, leading to conflicts of interest and inefficiencies. The PBC recommends separating these functions to enhance transparency, efficiency, and fairness in the tax system.
Why Separate Tax Policy from Collection?
- Avoiding conflict of interest: FBR’s dual role creates a conflict between maximizing revenue collection and formulating fair tax policies.
- Better representation of stakeholders: The new policy board should include representatives from key ministries such as Planning, Industries, Investment, and Commerce to ensure that tax policies align with broader economic objectives.
- Improved accountability and governance: A separate policy-making body would be better equipped to introduce reforms without being influenced by collection targets.
3. Establishment of National Tax Authority (NTA)
To improve tax administration and compliance, PBC has recommended establishing a fully functional National Tax Authority (NTA) as a single-window tax assessment and collection platform.
How Will NTA Improve Tax Collection?
- Centralized and streamlined tax compliance: Businesses and individuals would interact with a single authority, reducing administrative burdens.
- Efficient tax distribution: Taxes collected would be transferred directly to federal and provincial governments based on a predefined mechanism.
- Enhanced transparency and tracking: The NTA would help curb tax evasion by ensuring that all collected taxes are properly accounted for.
4. Changes in Super Tax Regime
The super tax is an additional tax on high-income businesses and individuals. The PBC recommends:
- Reducing the super tax on non-export profits by 2% per year to encourage investment.
- Implementing a progressive slab-based super tax rather than a flat rate, ensuring that high-earning entities contribute fairly.
- Boosting business confidence by gradually phasing out excessive tax burdens.
5. Reduction in Corporate and Sales Tax Rates
PBC suggests lowering the corporate tax rate by 1% annually until it reaches 25%, bringing it in line with other emerging economies.
Why Lower Corporate Tax?
- Encourages investment and expansion of businesses.
- Reduces incentives for tax evasion and capital flight.
- Enhances Pakistan’s global competitiveness.
Similarly, sales tax (GST) should be reduced by 1% annually until it reaches 15%, making consumer goods more affordable and increasing purchasing power.
6. Revision of Tax Slabs to Adjust for Inflation
The existing tax slabs do not account for inflation, leading to higher tax burdens on middle-class earners.
Proposed Revisions:
- Adjusting income tax slabs annually to reflect inflationary trends.
- Ensuring that salaried individuals retain more disposable income.
- Creating a more equitable taxation framework that reduces over-taxation of low and middle-income groups.
7. Reduction in Tax Burden on Salaried Employees
Salaried employees bear a disproportionate tax burden compared to business owners and the informal sector. The PBC recommends:
- Lowering income tax rates for salaried individuals.
- Providing more deductions and exemptions to offset inflation.
- Introducing fair tax policies that do not excessively penalize formal sector employees.
 key tax policy recommendations for Budget 2025-26, including tax policy separation from FBR, establishment of a National Tax Authority (NTA),){kind=link}