Govt Eyes Major Tax Relief for Corporates and Salaried Class

Prime Minister Shehbaz Sharif has directed his government to discuss a sweeping Rs. 975 billion tax relief package for corporate and salaried taxpayers with the International Monetary Fund, as Pakistan seeks to ease the tax burden on businesses and individuals while remaining within the bounds of its IMF program. The proposed package, presented by a private sector-led income tax reform panel, includes a 25% reduction in taxes for the salaried class, abolition of the income tax surcharge, and withdrawal of the capital value tax on foreign assets. The immediate cost of the relief is estimated at over Rs. 600 billion, according to sources familiar with the matter. However, implementation of the proposals will depend on IMF approval, with the government planning to move forward only on measures endorsed by the Fund. The recommendations were presented to the prime minister by Shehzad Saleem, chairman of the working group, but no immediate decision was taken. Instead, Sharif formed a committee led by Finance Minister Muhammad Aurangzeb to make the proposals actionable, with input from Shehzad Saleem and Minister of State for Finance Bilal Kayani. The panel’s recommendations include abolishing the super tax, reducing the minimum income tax, ending the corporate dividend tax, scrapping the Sindh Infrastructure Cess and Punjab Cess, withdrawing the advance income tax on exporters, and eliminating workers’ welfare and participation taxes. The group also proposed halving the minimum income tax immediately and phasing it out over two years, reducing the corporate income tax to 25%, and aligning higher tax rates on banks and petroleum companies with standard rates. If implemented, the measures would provide significant relief: Rs. 120 billion for the salaried class, Rs. 190 billion for corporates through the abolition of the super tax, Rs. 170 billion by lowering corporate tax rates, and Rs. 160 billion by reducing the minimum income tax. Additional relief would come from abolishing the capital value tax on foreign assets and cutting withholding tax rates on goods, services, and manufacturing. The government is also considering abolishing the 1% advance income tax on exporters and ending the Sindh and Punjab infrastructure cesses, in consultation with provincial authorities. The prime minister expressed support for removing the workers’ welfare fund and participation tax, which would provide Rs. 50 billion in relief. The tax reform push comes as Pakistan’s business community, military establishment, and independent experts reach consensus that the economy cannot grow without reducing or abolishing what they see as unreasonable taxes and bringing energy costs in line with regional peers. The government has pledged to take practical steps for export-led growth and to implement recommendations from various working groups. The finance minister-led committee is expected to submit a roadmap outlining practical steps to implement the proposed measures, as Pakistan seeks to balance fiscal reform with the need to maintain IMF support and foster economic growth.