Page 80 - CMA Journal (Nov-Dec 2024)

ECONOMY O TH ER F EATURES

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By ICMA Research and Publica ons Department

Strengthening Pakistan’s Tax System:

Policy Recommendations for FBR

Pakistan’s Federal Board of Revenue (FBR) faces the challenge of expanding the tax base
while ensuring sustainable revenue generation. To support this, ICMA’s Vice President,
Mr. Muhammad Yasin, and Chairman of the Research and Publications Committee have
submitted budget recommendations to the FBR and the Ministry of Finance,
Government of Pakistan.
This article provides a summary of the key measures proposed in these
recommendations, focusing on tax reforms to enhance compliance, reduce distortions,
and promote economic growth.
ICMA’s proposals aim to improve revenue collection and reduce reliance on external
borrowing. Key recommendations include a Green Tax Reform with incentives for
businesses adopting renewable energy and digitalization, a phased taxation framework for EV
manufacturers, and aligning Pakistan’s tax system with the OECD’s Pillar Two minimum corporate tax to meet
international standards. Other measures include a progressive pension tax, a cap on employer-provided
health insurance benefits, an expansion of Federal Excise Duty (FED), and GST integration. ICMA has also
suggested an 18.5% Minimum Alternative Tax (MAT), a 2% Wholesale Equalization Tax (WET), and bringing
exporters under the regular tax regime to ensure fair taxation and long-term fiscal stability.
Broadening the Tax Base through Green low-income retirees. Additionally, capping employer-
and Digital Incentives provided health insurance benefits at PKR 500,000
per year would reduce tax distortions and generate up
A proposed Depreciation Scheme would incentivize to PKR 10 billion annually.
businesses to invest in renewable energy and digital
transformation by offering tax deductions—ranging Expanding Federal Excise Duty (FED) Coverage
from 50% for green energy investments to 40% for Introducing FED on property sales, sugar, and
digital infrastructure. Similarly, a phased taxation
lubricants, along with harmonized taxation on tobacco
model for EV manufacturers ensures gradual tax and cement, could elevate tax revenues to 12.3% of
integration while fostering industry growth. These GDP. This strategy is estimated to generate PKR 1,723
measures are projected to add 0.5%-1% of GDP to tax
billion, reducing reliance on external borrowing.
revenues within 3-5 years.
Flat GST Policy for Mid-Tier Businesses
Implementing Global Tax Standards
Businesses with annual sales between PKR 6 million
The recommendation to enforce a 15% minimum and PKR 40 million would be required to register for
corporate tax under the OECD/G20 BEPS framework GST and pay a flat 1% tax on sales. This measure aims
aims to align Pakistan with international norms. This to simplify tax compliance and increase formalization
reform is expected to generate PKR 25 billion annually, in the mid-tier business sector. Formalizing the value
ensuring fair taxation of multinational corporations. chain could contributeto 0.1-0.2% growth in GDP.
Equitable Taxation on Pension Incomes and
Health Benefits
To ensure fairness, a 10% tax on pension incomes
above PKR 200,000/month is proposed, safeguarding
78 ICMA’s Chartered Management Accountant, Jan-Feb 2025 BACK TO CONTENTS PAGE