Pakistan’s banking sector has emerged as the single largest contributor to government revenue as a result of elevated taxation, according to the Pakistan Banks Association (PBA).
While the heavy tax take has helped shore up public finances in the short term, it is increasingly being viewed as a constraint on the sector’s long-term growth and competitiveness.
PBA said high corporate taxes on banks are eroding profitability, discouraging foreign investment, and limiting the sector’s ability to expand credit to the private economy.
The pressure on margins has also slowed progress toward financial inclusion and the expansion of digital banking services, at a time when higher access to formal finance is seen as critical for economic growth.
A gradual reduction in the tax burden could help unlock new growth avenues for the banking industry. Lower taxes would improve returns, attract foreign capital, and encourage banks to increase lending to businesses and consumers.
A more balanced tax framework could support the development of a stronger, more inclusive, and technology-driven financial system, while still ensuring sustainable revenue for the government over the medium term.