Pakistan Business Tax Rate is The Third Highest in the World

The World Bank recently released a report on business taxes titled Toward a More Business Friendly Tax Regime: Key Challenges in South Asia. In the report, the World Bank has warned that Pakistan has a disturbingly high tax rate for businesses. The tax rate is stated as unusually high for a nation from a developing region.

What Does The Report Say About Pakistan’s Corporate Tax Rate?

The report ranks Pakistan’s corporate tax rate as the third highest in the world. A similar trend was seen in several other developing countries from the South Asian region. World Bank’s report cites that “Corporate tax rates in South Asia are higher than those in other developing regions” due to a “narrow tax base” which has resulted in higher tax rates.

The Pakistani government continues to give tax incentives to privileged firms despite the small tax base nationwide. This approach benefits the few high-revenue businesses which are already settled in the market while deteriorating the overall investment environment in the country. This also puts extra pressure on the already small number of taxpayers, the report states.

A Look at Some Hard Facts and Figures Regarding Pakistan’s Tax Regime

According to State Bank of Pakistan (SBP), Pakistan’s tax-to-GDP ratio has remained within a range of 8.5% to 9.5% over the past 10 years. Out of all the cities in the country, Islamabad has the lowest tax-to-GDP ratio. Islamabad also holds the title of having the lowest tax-to-GDP ratio in the world.

World Bank’s report says that despite having such a big population, only 1.2 million individuals and firms file their income tax returns in Pakistan. Half of these tax filers are from the corporate sector. About 118,000 firms are enrolled to pay sales taxes, however, only 15,000 actually pay any tax at all.

Pakistan’s tax-to-GDP ratio has remained within a range of 8.5% to 9.5% over the past 10 years.

Pakistani government offers $4.7 billion worth of subsidies on different forms of direct and indirect taxes, which is about 2 percent of the country’s GDP. The report notes that these incentives and subsidies are not targeted to address market failures so they produce little benefit.

The policy paper, compiled by Anna Reva (Operations officer at the World Bank’s Poverty Reduction and Equity Department), discusses issues residing in the structure and administration of corporate taxes in the South Asian region including Pakistan. The report notes that, throughout the region, select industries and firms are offered exemptions and concessions, while different indirect taxes are levied and industries have to comply with high taxes.

Global average corporate tax is about 24 percent, which increases to 32 percent in the South Asian region. Pakistan has an even higher 34 percent corporate income tax rate.

High business taxes discourage investment due to decrease in revenue and an increase in sales taxes reduces spending. The report also urges the Pakistani government to make the tax payment process easier. For comparison’s sake, in some countries, it takes companies 12 payments and 175 man-hours on tax regulations while in Pakistan, firms make 47 payments and spend 74 business days each year. The government should promote a positive trend of buying and investment by reducing taxes to the lowest possible level and making the process easier, states the report.

He is the Editor-in-Chief at ProPakistani. Reach out at aadil.s[at]

  • Only objective of the government is to win the next election and for that they know the recipe very well. Build roads and one more green line metro in only Lahore and win from whole of Punjab and hence all the country is guaranteed. They know the mentality of people and they don’t need to implement all these bullshit to grow the country.

    • At least this government is doing some development whether in making roads or in metro.but our kpk government is just barking on others n claiming for good health. But in this kpk government they have ruined the ayub medical complex Atd which is considerd the biggest hospital in hazara.

      • Atleast they are not taking loans on unsustainable rates that the entire country will have to pay back for decades!

        But i guess you don’t understand that.

        • I hardly believe political parties make this country unsustainable.
          Enjoy war on terror…loss 60 billion dollar, get 35 billion dollar US aid..make your country vulnerable for investments…eventually get loans at higher rate..the more risk ..the more interest rate on loan…

      • So you think that by taking loans you are developing your country(country means Lahore). Tell me one reform other than metro or orange line or some flyovers which you think has added to the betterment of people of the country.. Be honset..

        • Why children from APS school attack got treatment in punjab?
          The GDP of punjab is way more than other provinces..
          Human capital, industry, investment, education, health..why punjab is leading..and for lahore..yes it’s capital and capital gets more budget..more development..same happens in islamabad…why you people always cry without knowing anything except what you hear from controlled media?
          For loans…oh i forgot how much loan taken by china japan US and other developed countries …please let me know…
          atleast loan is better than US aid.. isn’t it?

          • Here you are again defending your beloved government. I am not against you. I myself voted this government.
            But my point is that they are using loans in wrong areas. Metors and flyovers are not development when you have more important issues to work on.
            Punjab may have more resources but that does not mean that you disregard other provinces.
            You are comparing a country which is under development with those countries which are developed. Not only is Pakistan’s external debt increasing, but at the same time Pakistan’s ability to pay back this debt is decreasing significantly.

            • Did you ever took a loan from bank or you have any idea those who gave you loan will deeply look where you spend and how they can get their money back with interest.
              People here suggest world bank and IMF to do what.. lol
              Plus Punjab doesn’t have resources like other provinces. Punjab rely on agriculture and industry and for both you need infrastructure. Plus punjab is not only handling it’s 9 crore population but also home for 3 crore from other provinces and we don’t kill anyone that he is sindhi balochi or whatever.
              I am comparing at a time when they were not developed but I am explaining how they become developed.
              Why don’t dubai spend it’s money in other resources instead of infrastructure? they know infrastructure bring industry and industry mean development.
              If you need schools then first make sure they have jobs and better living standards

              • So how will you explain the frequent increase in the prices due to the conditions of IMF. their loan is safe but continuous increase in prices will affect Pakistani people. Loan by a country is different than the loan taken by an individual or a small business.
                You want to first achieve better living standards and then go for development of schools. very good.
                You know that you are defending something that is not right. But you will still continue to defend it.

                • what you called price increase in real it’s decreasing subsidiaries. When IMF give loan. They ask you to increase tax net and reduce subsidies as our country is not that rich or developed neither people should get subsidy if they don’t pay tax.
                  And for schools, this is just propaganda, more people are jobless than those out of schools are you demand schools.
                  I say what is right not defend and you have to say against one specific person which I don’t blame you coz your minds are controlled by media

      • See…thats exactly I was talking about. As long as this government keeps building roads which naive minds see as measurable, majority of people will use the word ‘at least’ to justify and keep electing these MCs again and again and again.

        • Yes the word at least is better than nothing .so where should we cast our vote n to whom.Obama will never be elected from here.n I m from kpk n believe me people r abusing kpk government coz of their policies n work which u can’t see specially in hazara division.I don’t know about Peshawar coz I have never been there.but Peshawar is not a whole kpk.

          • Unless your mentality is focused on roads and metros you can’t understand the deep rooted efforts of any sensible government. For the record, as per my knowledge, KPK govt is also building roads or similar things in Peshawar and N-League is also building everything in Lahore. Even for that you can’t say that KPK has done nothing or less than N-League. But KPK govt is definitely doing a lot more than building roads. If you stop seeing what you have chosen or you believe that only your area is whole of KPK and start looking at the overall efforts objectively then you possibly you could better judge the situation.

          • And also may I ask if you are government employee who used to enjoy salary without any work since ages but now you have to work or you lost your job for doing nothing. Of course, doctors or other govt employees who used to do nothing would abuse KPK govt. Can you also name what current KPK govt has done to your area and what previous govt or N-league govt could do to your area. If you think N-league will build metro in hazara then you are living in fools paradise. Their only focus is Punjab and from Punjab mostly Lahore.

            • I have got my personal business. I m not a government employ.but here people who cast their vote to pti r crying our spilt milk. Their is no rit of government in specially Abbottabad area.
              Although I really hate Anp but believe me it was a lot better than pti.pti has ruined hospitals.u may come n see the Ayub medical complex which is considered a largest hospital by area n it had descent facilities. But thanks to pti there is nothing but dogs n some people of backward areas of Mansehra.

        • You know the idiots in london build metro in 18th century in london and they have one university and few colleges at that time…oh i forgot sher shah suri known as best leader in our region who build GT Road..and yes the britishers in 19th century only focusing on roads , railways which we are using now…

        • Mr. Economist just like their steve job asad umer.
          We have 120 nuclear weapons now. Is that measurable for you?

      • I really do not understand you Noon league supporters. Whenever someone criticize gunjas, you just start barking at PTI.
        ImranG didn’t even say a word in favour of PTI, he just said what is true about goverment and about mentality of people of Pakistan

        • Pottians can be felt whether u see them or not.N what has randa khan done in kpk I just asked.its a simple question.don’t twist it.

        • Haha only youthias bark man just like imran khan.Abusive language only come from youthias.Pti support ers start barking if you say something to them .see i ask you to go and check by yourself and see you reply like a youthia
          no facts no stats no knowledge = youthia

  • Bring the tax rate to world’s third lowest and see money rain on government. not only that. For that the right use of taxes should be assured. Also axe those politicians and industrialists who don’t pay taxes. Funny thing pakistan is that, those who never pay taxes make our financial policies.

  • No taxation without representation. These waderas & industrialists in parliament do not represent the common man.

  • And mind you, that tax is applicable only on small, medium, non political, non military alliance businesses.

    Big established business of all Zamendaars, Generals and Politicians are of-course exempted from this.

  • And then they say investment doesn’t come into our country because of the terror situation. Terrorism is a factor, yes, but for businesses, finances are the key. You can’t expect them to put money in a sinkhole.

    China, our ‘gehra dost’, only invests here because they are after the warm port of Gwadar. We will see how much Chinese investment comes in once CPEC is up and running.

  • taxes they are taking because IMF and world bank saying to increase tax and patwari what they want more then taxes

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