A senior businessman involved in the consortium that acquired a 75 percent stake with management control in Pakistan International Airlines (PIA) has indicated that the government is likely to approach the International Monetary Fund (IMF) to seek a reduction in the overall tax burden on businesses, a move aimed at improving the investment climate and attracting both local and foreign capital into the country.
Speaking at a panel discussion titled “Why Institutions Matter? The Story of Meezan Bank” during the 17th Karachi Literature Festival (KLF), Arif Habib said that Pakistan’s cumulative tax incidence on businesses has reached an unsustainably high level, which he described as a major deterrent to economic growth and foreign direct investment (FDI). According to his assessment, the combined impact of various federal taxes has pushed the effective tax rate on businesses to between 62 percent and 65 percent.
Habib explained that this high burden is not limited to corporate income tax alone but is the result of multiple layers of taxation. These include a 29 percent corporate tax, super tax, inter-corporate dividend tax, dividend tax, and the Section 7E tax imposed on income derived from immovable property. He noted that this complex and heavy tax structure has significantly reduced the attractiveness of Pakistan as an investment destination, both for domestic investors and for international firms considering long-term commitments in the country.
He added that there are ongoing discussions within government circles regarding engagement with the IMF to rationalise these tax rates. Habib stated that he had personally held discussions with the prime minister and the chairman of the Federal Board of Revenue (FBR), and that the authorities have agreed to take the matter to the IMF. According to him, the government intends to request flexibility in fiscal targets to allow space for tax reforms that could stimulate investment and economic activity.
In this context, Habib said the government is expected to propose a reduction in the primary surplus target to 1 percent of gross domestic product (GDP). Such a move, he argued, would create fiscal space of approximately Rs1.3 trillion, which could help offset the revenue impact of lowering business tax rates. The IMF had earlier set the primary surplus target at 1.6 percent of GDP for the ongoing fiscal year 2025-26. However, the primary surplus recorded during the first half of the fiscal year, from July to December FY26, stood at 3.2 percent of GDP, or Rs4.105 trillion, indicating room for downward adjustment.
Pakistan is currently operating under a 37-month Extended Fund Facility (EFF) programme with the IMF, valued at $7 billion. Under this programme, the government regularly consults the IMF on key economic and fiscal decisions, particularly those related to taxation and revenue generation, in order to remain compliant with programme conditions.
Habib outlined specific tax reforms that he believes should be pursued as part of discussions with the IMF. These include reducing the corporate tax rate from 29 percent to 27 percent, abolishing the inter-corporate dividend tax, removing Section 7E, and lowering the general sales tax (GST) rate from 18 percent to 15 percent. He also emphasised the importance of lower borrowing costs for businesses, calling on the central bank to bring the policy rate into single digits from the current level of 10.5 percent, along with improvements in the country’s security situation to restore investor confidence.
During the same session, former State Bank of Pakistan governor Dr Ishrat Hussain highlighted the rapid growth of Islamic banking in the country, noting that Shariah-compliant banks now account for approximately 24 to 25 percent of total industry assets, compared to virtually zero share around 23 years ago. Meezan Bank Chief Executive Officer Syed Amir Ali said the bank is focusing on digitalisation within Islamic banking, adding that the mathematical foundations of artificial intelligence trace back to algebra developed by Muslim scholars during the golden era between 900 and 1300 AD.
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