Heavy taxes, inconsistent policies forcing multinationals to leave Pakistan, trade representative says

Arab News

2 days ago

KARACHI: Many multinational corporations (MNCs) have 'packed up' and left Pakistan in recent years because of the country's 'inconsistent policies and a complicated tax regime,' Overseas Investors Chamber of Commerce & Industry (OICCI) CEO Abdul Aleem said this week.
Prime Minister Shehbaz Sharif's government has imposed as much as 29 percent taxes on corporate incomes to increase the cash-strapped country's revenues with the help of International Monetary Fund (IMF) that wanted Islamabad to tax incomes from agriculture, real estate and retail sectors in the fiscal year 2025-26 budget that Finance Minister Muhammad Aurangzeb is expected to present on June 10.
'Basically the issue with our members and which generally the foreign investors are facing is that the consistency of policy is not there,' Aleem told Arab News in an interview on Friday.
Pakistan's existing tax regime is 'very complicated' and leads to a lot of litigations while abrupt changes in the government's corporate policies have seen global giants like Shell plc., TotalEnergies SE and some pharmaceutical firms divest their shares in the country, the world's fifth most populous nation and thus a big consumer market.
The OICCI is the biggest taxpayer in Pakistan that has been paying Rs15 billion ($53.2 million) daily in taxes, which is about one-third of the total taxes the nation collects in a year, according to its CEO. Its members include Pepsi-Cola International (Private) Limited, Pakistan Kuwait Investment Company, Citibank N.A., Toyota's Pakistan unit Indus Motor Company Ltd. and Maersk Pakistan (Pvt.) Ltd.
'Many of the companies packed up a few years back,' Aleem said.
TotalEnergies SE sold 50 percent of its shareholding in Total PARCO Pakistan Ltd. to Gunvor Group last year, while Shell plc sold a majority stake in its Pakistan business to Wafi Energy LLC of Saudi Arabia in November 2023.
Higher taxes on the incomes of corporate and salaried persons is another area of concern for foreign investors who directly or indirectly employ around one million Pakistanis.
Sharif's government has been charging businesses as much as 10 percent as super tax, 18 percent sales tax, and 29 percent as corporate tax this fiscal year, which ends on June 30.
'In comparison to the region, it is higher,' Aleem said about the corporate tax, which he said should be slashed to 25 percent through a one percent annual reduction. The 18 percent sales tax too should be reduced on the same pattern to 15 percent that will align the levy to what is being paid in the region, according to the OICCI CEO.
The 10 percent super tax should be abolished in the next three years so that the MNCs operating in Pakistan could be more competitive. The government should provide relief to the heavily-taxed salaried persons in FY26 budget to stop the so-called brain drain from the country.
Record number of skilled individuals and professionals deserted Pakistan for other countries and inflicted a huge loss on the South Asian nation in the form of human capital and resources, Bloomberg News reported in October.
The Pakistani government, which is charging salaried persons as much as 35 percent tax on incomes, has said it wants to provide some relief to them in the new budget, which will take effect from July.
'The salary taxes in Pakistan are very high. It should be reduced immediately because it is having an impact,' the OICCI chief said.
'It is very necessary that we get good quality people to remain in the country and work for the industry as well. And there should be an element of fairness in taxation.'
In recent years, PM Sharif's government has been trying to attract foreign direct investment (FDI) into the country and has established a Special Investment Facilitation Council (SIFC), a civil-military forum, to rid foreigners of bureaucratic hurdles. However, the investment inflows have been dismal and could not increase beyond $3 billion a year.
'The government has to facilitate the existing foreign investors by not only streamlining the tax rates but also streamlining the systems, tax system, compliance system so that more and more foreign investment is attracted,' Aleem said.
The OICCI, he said, was the largest foreign investor in Pakistan and had brought about $20 billion fresh FDI besides reinvesting more than $23 billion in Pakistan over the last one decade.
'We are the largest taxpayers and I think there is need to rationalize the tax regime,' Aleem said, adding that the government could increase Pakistan's 10.6 percent tax-to-GDP ratio to 14 percent by taxing services, agriculture and trades.
The OICCI chief said the government should decrease its expenses by 'offloading' loss-making, state-owned enterprises, including the Pakistan International Airlines, as well as plug leakages in its revenue from tobacco industry.
The two MNCs, Pakistan Tobacco Company Ltd. of British American Tobacco Group and Phillip Morris International, were paying 99 percent taxes while their market share stays at 53 percent.
'That tells you that the other 47 percent or half of the industry is not paying its tax which is Rs300 billion,' he said. 'There is need for more robust action from the authorities.'
Arab News contacted Qamar Sarwar Abbasi, spokesperson for the finance ministry, regarding the concerns raised by the OICCI official, but he did not offer any comment.