The federal government is considering reducing the corporate tax rate and offering broader tax reliefs in the upcoming budget for the fiscal year 2025-26, as it looks to support economic activity and job creation by leveraging improved fiscal space created through falling global oil prices and a significant drop in interest rates.
This potential shift in fiscal policy comes after the State Bank of Pakistan slashed its key policy rate by 10 percentage points since June 2024, bringing it down to 12%, which has substantially reduced the government’s debt servicing costs.
Speaking at the Karachi Chamber of Commerce and Industry (KCCI) on Saturday, Special Assistant to the Prime Minister for Industries and Production Haroon Akhtar Khan said, “Rationalisation of corporate tax is very important. Prime Minister Shehbaz Sharif made a tremendous move in making use of the declining oil prices and convinced the IMF to reduce power tariffs. I have requested the PM to use the savings to also reduce the corporate tax rate.”
Currently, the base corporate tax rate has remained at 29% since FY21, but the imposition of a Super Tax has pushed the effective rate up to 39% for companies with annual profits exceeding Rs150 million. For banks, the burden is even heavier—with a Super Tax that peaked at 15% last year and remains at 14% in 2025. The tax may be gradually reduced to 13% in 2026 and 2027.
Akhtar stated at both KCCI and later the Pakistan Business Council (PBC) that he favors scrapping the Super Tax altogether in the FY26 budget. “The government is seriously evaluating the removal of the Super Tax and providing further tax relief to industries, particularly now that we have gained some breathing room fiscally,” he said.
However, he cautioned that Pakistan’s ongoing engagement with the IMF may limit the scope of immediate fiscal measures. “There are constraints due to the IMF programme, but not everything is dictated by donor agencies. Many of our problems are self-imposed, and we can fix them,” he said, referring to bureaucratic inefficiencies and regulatory hurdles that hinder business operations.
Highlighting these issues, Akhtar revealed that businesses currently face nearly 350 certification requirements to establish operations, many of which involve navigating federal and provincial red tape. “This has to go away,” he emphasized.
He also noted that relief is being considered under the Export Finance Scheme to support exporters and confirmed that work is underway on a new industrial policy, calling it “the number one task assigned by the Prime Minister,” with half the work already completed.
