Missed Opportunity: OICCI slams Budget FY26 for ignoring informal economy
The Overseas Investors Chamber of Commerce and Industry (OICCI), representing over 200 of the largest foreign investors in Pakistan, has expressed disappointment over the government's limited progress in addressing the 'inequitable corporate tax rate' in the recent budget.
'While the marginal reduction in Super Tax rates is acknowledged, OICCI reiterates the urgent need for a comprehensive overhaul of tax structures to enhance Pakistan's competitiveness and attract foreign investment,' the chamber said in a statement on Tuesday.
Finance Minister Muhammad Aurangzeb announced Pakistan's federal budget 2025-26 'for a competitive economy' on Tuesday, targeting a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25.
OICCI's budget proposals — balancing reform with reality
The chamber also noted the 'absence of meaningful reductions' in government expenditure, which could have helped narrow the budget deficit.
The chamber urged the government to prioritise expenditure rationalisation in its budgetary measures.
'OICCI regrets the government's missed opportunity to broaden the tax base in the current budget, particularly the absence of any concrete strategy to document Pakistan's substantial Rs9 trillion cash-based informal economy - a critical measure for meaningful revenue enhancement and economic formalisation that the chamber has consistently advocated for,' it added.
On the other hand, OICCI acknowledged positive reforms, including simplified tax returns for salaried individuals and small businesses, the nationwide rollout of e-invoicing, and the expansion of POS systems.
'However, their success hinges on effective implementation, and OICCI stresses the need for transparency and consistency in execution,' it said.
OICCI said that the increase in the tax exemption threshold for salaried individuals, from Rs0.6 million to Rs1.2 million, and the reduction in their tax rate, from 5% to 1%, 'are commendable steps that align with OICCI's recommendations but still fall short of providing impactful and necessary relief to reduce ongoing brain drain in the country'.
The chamber noted that the government's gradual phasing out of tax exemption on FATA and PATA and the government's stricter measures against non-compliant taxpayers, including restrictions on property and vehicle purchases, asset transfers abroad, and enhanced penalties, are crucial for improving tax compliance and broadening the revenue base.
'Despite these advancements, the budget falls short of introducing transformative policies for the corporate sector,' it said.
OICCI emphasised that gradually rationalising tax slabs and reducing the overall tax burden on businesses are essential to promoting a more investment-friendly environment.
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