Pakistan Finance Minister Calls for Retail Sector Tax Reforms as Economy Stabilizes

Senator Muhammad Aurangzeb, Pakistan's Federal Finance Minister, highlighted on Thursday that the retail sector, which constitutes a substantial 19% of the nation’s GDP, is contributing a mere 1% in taxes, raising alarms about its insufficient participation in the national tax system.

At the “Retail Reimagined: Innovate, Collaborate & Thrive” conference hosted by the Pakistan Retail Business Council (PRBC), the Minister stated that the government has been engaging with retail businesses to encourage formalization and proper tax compliance. He emphasized that, for the nation's well-being, it is no longer feasible to allow sectors to avoid their tax obligations, stressing that proper documentation is crucial to achieving tax objectives.

The Minister also addressed the issue of unequal tax burdens, pointing out that industries like manufacturing, services, and salaried workers are shouldering a disproportionate amount. He urged the expansion of the tax base to include agriculture, real estate, retail, and wholesale sectors.

Acknowledging the provincial governments’ efforts to impose agricultural taxes through legislative measures, he noted that Pakistan has seen an alarming Rs9.4 trillion in cash circulation that must be integrated into the formal economy. While this transition won’t happen instantly, the government is determined to take the necessary steps in this direction.

According to the finance minister, Pakistan's economy is on a positive trajectory, citing improvements such as currency stabilization, growth in foreign exchange reserves, and a reduction in inflation, with the policy rate dropping significantly and Kibor decreasing from 23% to about 11%. These changes are already attracting foreign investors back into the country.

The Minister further highlighted Pakistan’s ongoing dialogue with global credit rating agencies, with hopes of upgrading its rating to the "Single B" category. This would not only bolster Pakistan’s global credibility but also diversify the country’s funding sources and provide access to international capital markets, helping the nation regain its status as a "bankable brand" and marking a key step in its economic recovery.

Focusing on long-term, sustainable growth, the government is committed to avoiding the volatile boom-and-bust cycles of the past. Major structural reforms are underway in areas like taxation, energy, state-owned enterprises (SOEs), and public finance. The finance minister mentioned that the taxation system is undergoing a digital transformation, aiming to increase transparency, reduce corruption, and minimize inefficiencies.

The successful implementation of faceless customs has already resulted in impressive improvements, with the clearance time for imports reduced from 118 hours to just 18-19 hours, cutting down on bribery and inefficiencies within the system.

In the energy sector, efforts are being made to establish a more competitive market. Additionally, a cabinet committee, led by the finance minister, is spearheading reforms across 43 ministries, with 20 ministries already undergoing restructuring, aiming to complete the process by June.

Lastly, the Minister emphasized the importance of the private sector taking the lead in driving growth. The government is committed to creating an enabling policy environment and ensuring continuity in policies. In pursuit of fiscal responsibility, the government has implemented a right-sizing strategy and pension reforms, including shifting civil servants to a defined contribution system