The Research and Publications (R&P) Committee of ICMA Pakistan headed by Mr. Muhammad Yasin, Vice President ICMA, has submitted a comprehensive set of policy proposals to the Federal Board of Revenue (FBR) aimed at optimizing revenue generation and fostering economic growth. These recommendations focus on broadening the tax base, integrating the entire business value chain into the GST regime, promoting progressive taxation, and addressing tax distortions and procedural anomalies.
To enhance revenue collection and reduce reliance on external borrowing, ICMA has proposed key reforms, including a Green Tax Reform that offers incentives for renewable energy adoption and digitalization, a phased taxation framework for electric vehicle (EV) manufacturers,and alignment with the OECDs Pillar Two minimum corporate tax. Additional measures include a progressive pension tax, a cap on employer-provided health insurance benefits, expansion of the Federal Excise Duty (FED), and full GST integration. ICMA has also suggested introducing a Minimum Alternative Tax (MAT) at 18.5%, a 2% Wholesale Equalization Tax (WET), and the inclusion of exporters under the regular tax regime to promote fiscal sustainability.
Broadening the Tax Base
ICMA has proposed a Green Tax Reform, recommending a Depreciation Scheme to incentivize green energy and digital transformation initiatives. The proposed tax deductions include 50% on investments in renewable energy projects, 30% on operational costs for green energy practices, 40% on digital transformation investments such as cloud infrastructure and automation, and 25% for training employees in digital skills.
For the EV sector, ICMA has suggested a phased taxation model, starting with a 10%-15% tax on profits and gradually increasing to 20%-25% over five years to support the industrys growth.
In alignment with OECD/G20 BEPS Pillar Two, ICMA has proposed enforcing a 15% minimum corporate tax on multinational enterprises with annual revenues exceeding PKR 21 billion to enhance Pakistans tax base.
To ensure equitable taxation, ICMA has recommended imposing a 10% tax on pension incomes exceeding PKR 200,000 per month, while exempting lower-income retirees. Additionally, it has proposed capping the tax exclusion on employer-provided health insurance benefits at PKR 500,000 per year, with amounts above this limit taxed as ordinary income.
Integrating Entire Business Value Chain into GST Regime
ICMA has suggested imposing GST on businesses with annual sales between PKR 6 million and PKR 40 million, requiring them to register and pay a flat 1% tax on sales. Additionally, it has recommended a flat-rate credit scheme for non-GST-registered sellers, whereby businesses would collect GST at a standard 15% rate, with 8.5% credited back to sellers for input costs and 6.5% remitted to the FBR.
For cross-border e-commerce, ICMA has proposed mandatory GST registration for offshore sellers whose annual sales to domestic consumers exceed PKR 9 million.
To ensure fairness, ICMA has suggested introducing a Minimum Alternative Tax (MAT) at 18.5%, ensuring corporations with substantial profits contribute a fair share, even when utilizing tax incentives. It has also recommended a 2% Wholesale Equalization Tax (WET) on retailers, wholesalers, processed food industries, and certain agricultural products, in addition to the existing 18% GST.
Incidence of Tax on Affluent Classes
ICMA has recommended integrating exporters into the regular tax system and streamlining Personal Income Tax (PIT) slabs to five, with a maximum tax rate of 45% for non-salary individuals (NSI).
To ensure progressive taxation, ICMA has proposed a wealth tax on the top 0.5% of households, with rates ranging from 1.7% to 3.5%, modeled after Spains featherlight tax. A real estate wealth tax has also been suggested for individuals with assets exceeding PKR 50 million, with rates between 0.5% and 1.5%.
To tax the digital economy, ICMA has recommended a 3.5% Public Broadcasting Contribution Tax on social media earnings above PKR 5 million annually and a tax on digital subscriptions, such as Netflix and Disney+.
ICMA has also suggested imposing a standardized 15% tax on previously exempt sectors, including electric power generation projects, real estate investments, jewelry, cinema operations, venture capital companies, and tourism.
Addressing Tax Distortions and Procedural Lapses
ICMA has recommended implementing a Compliance Risk Management (CRM) framework in key cities, using third-party data and analytics to improve tax compliance. Additionally, it has proposed establishing a Tax Planning Unit (TPU) within the Ministry of Finance, staffed with experts including cost and management accountants, to develop and implement effective tax policies.
To enhance digital compliance, ICMA has suggested upgrading the Tajir Dost Portal by simplifying tax structures, automating calculations, and integrating pre-filled tax returns and payment gateways. It has also recommended streamlining Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) processes through automated systems and AI-driven compliance monitoring.
For e-commerce, ICMA has proposed applying VAT or GST on cross-border online sales to prevent revenue leakage and ensure fair competition between domestic and international sellers.
These comprehensive recommendations aim to create a fair, transparent, and efficient taxation system that fosters economic growth while ensuring a broader and more equitable tax base. ICMA looks forward to the favorable consideration of these proposals by the Federal Board of Revenue (FBR).