Government Considers Corporate Tax Reduction for 2025-26 Budget

A transformative fiscal strategy is under contemplation! The federal government is poised to lower the corporate tax rate and introduce extensive tax concessions in the forthcoming 2025-26 budget, aiming to bolster economic vitality and foster employment opportunities. This initiative capitalises on enhanced fiscal flexibility arising from plummeting global oil prices and a substantial reduction in interest rates.

The State Bank of Pakistan has curtailed its key policy rate by 10 percentage points since June 2024, reducing it to 12%, thereby significantly alleviating the government’s debt servicing obligations.

Addressing the Karachi Chamber of Commerce and Industry (KCCI) on Saturday, Special Assistant to the Prime Minister for Industries and Production, Haroon Akhtar Khan, declared, “Revising the corporate tax structure is of paramount importance. Prime Minister Shehbaz Sharif has adeptly harnessed declining oil prices to secure IMF approval for reduced power tariffs. I have urged the Prime Minister to channel these savings into lowering the corporate tax rate.”

At present, the standard corporate tax rate remains at 29% since FY21, yet the introduction of a Super Tax has elevated the effective rate to 39% for firms earning annual profits above Rs150 million. For banks, the burden is yet more onerous, with a Super Tax reaching 15% last year and holding at 14% in 2025, potentially easing to 13% in 2026 and 2027.

Speaking at both the KCCI and subsequently the Pakistan Business Council (PBC), Akhtar advocated for the complete abolition of the Super Tax in the FY26 budget. “The government is earnestly assessing the elimination of the Super Tax and extending further tax relief to industries, particularly as we now enjoy some fiscal leeway,” he affirmed.

Nonetheless, he acknowledged that Pakistan’s commitments under the IMF programme might constrain immediate fiscal reforms. “Whilst the IMF imposes certain limitations, not all our challenges stem from external directives. Many issues are self-inflicted, and we possess the means to rectify them,” he remarked, alluding to bureaucratic inefficiencies and regulatory obstacles impeding business operations.

Akhtar highlighted that enterprises currently contend with approximately 350 certification requirements to commence operations, navigating a labyrinth of federal and provincial regulations. “This must be eradicated,” he insisted.

He further disclosed that relief measures are being contemplated under the Export Finance Scheme to aid exporters, and efforts are advancing on a new industrial policy, deemed “the foremost priority entrusted by the Prime Minister,” with half the endeavour already accomplished.