Page 9 - CMA Journal (Sep-Oct 2025)

Exclusive Interview

percent on top. When you include taxes on dividends,
High interest rates have been a the effective rate for many companies exceeds 50
persistent hurdle for Pakistan’s percent. By contrast, in India, companies with turnover
up to USD 45.3 million pay 25 percent, while those above
industries, limiting their ability that threshold face a higher rate. In Bangladesh,
to invest and expand. One non-listed companies are taxed at 27.5 percent, while
listed companies meeting IPO requirements pay 20
approach is to develop percent. Vietnam applies 15 percent for businesses with
alternative financing revenue under USD 120,000 and 17 percent for those
earning between USD 120,000 and 2 million. China’s
instruments such as venture corporate tax rate generally stands at 25 percent, with
capital, private equity, and double taxation at 15 percent and foreign companies at
40 percent.
leasing options, which can This wide gap deters foreign direct investment, as
reduce dependence on investors naturally prefer jurisdictions with lower taxes
traditional bank loans and higher returns. High corporate taxes also encourage
informal business activity, pushing firms to operate
underground and eroding the formal tax base. For
domestic businesses, heavy taxation limits retained
Creating sector-specific industrial clusters can make a
earnings, leaving little room for reinvestment in capacity
huge difference. Imagine zones where textiles,
expansion, technology upgrades, or research and
engineering, and agro-processing industries have shared
development. The higher cost burden also gets reflected
infrastructure, R&D facilities, and technology transfer
in product prices, reducing competitiveness in
centers. Such clusters can foster innovation and
international markets.
collaboration in a way isolated firms simply cannot.
Encouraging technology partnerships with foreign firms Over time, these pressures can lead to capital flight,
through matchmaking platforms and joint venture weaken investor sentiment, and create a perception of a
support can also bring in the expertise we need to hostile business environment that discourages long-term
accelerate industrial growth. planning and entrepreneurship. Small businesses often
avoid formal registration or expansion just to remain
We should also incentivize backward integration, giving
below tax thresholds. In short, while taxes are essential for
tax credits and subsidies to companies that build local
public revenue, Pakistan’s current corporate tax structure
supply chains for intermediate and capital goods instead
is not only high but also constraining growth, deterring
of relying on imports. Trade policies need to reward
investment, and limiting our ability to compete
value addition, so reforming tariffs, duty drawback
effectively in the region and beyond.
systems, and export rebates to favor processed and
finished goods can nudge industries toward ICMA: You have suggested reducing the maximum tax
higher-value production. rate to 20 percent. How could this reform boost growth,
attract investment, and ensure sustainable revenue?
Equally important is helping our traditional sectors
diversify. Innovation funds, design centers, and Dr. Gohar Ejaz: Reducing the maximum corporate tax
upgraded testing and certification facilities can rate to 20 percent could be a game-changer for
empower textiles, leather, and other industries to Pakistan’s economy.
develop new product lines and access premium markets.
For me, this is not just about numbers or policies — it is
about creating an environment where Pakistani Pakistan also has an established
industries can grow smarter, innovate faster, and
compete globally with confidence. manufacturing base, with expertise

ICMA: Pakistan’s corporate tax burden is among the in sectors such as textiles, leather,
highest in the region. How is this affecting business
confidence and investment decisions? surgical instruments, and sports
Dr. Gohar Ejaz: Pakistan’s corporate tax rates are among goods. This provides a strong
the highest in the region, and this has serious
consequences for business confidence and investment. foundation on which industries can
Public companies face a 29 percent tax rate, banks are
taxed at 39 percent, and the super tax adds another 10 scale and diversify

ICMA’s Chartered Management Accountant, Sep-Oct 2025 7