OICCI’s budget proposals — balancing reform with reality
The Overseas Investors Chamber of Commerce and Industry (OICCI), representing over 200 of the largest foreign investors in Pakistan, has released a comprehensive set of taxation proposals for the 2025–26 Federal Budget aimed at tax simplification, investment promotion, and industrial revival. Central to the proposals is a phased reduction in the corporate tax rate from 28 percent to 25 percent and the gradual abolition of the super tax over three years—measures intended to align Pakistan’s tax structure with global norms while easing the burden on compliant businesses. These recommendations signal a significant shift in Pakistan’s tax policy, prioritizing predictability and fairness. However, given the country’s constrained fiscal space and ongoing IMF oversight, such reductions may face resistance unless matched by gains through immediate base broadening.
A critical structural reform proposed by OICCI is the operationalization of the Tax Policy Board under the Ministry of Finance. This shift seeks to decouple tax policy formulation from administration, enabling long-term and coherent planning. The proposals also emphasize transparency and digitization, including demonetizing high-value currency notes, publishing monthly tax refund data, and integrating tax systems with other government databases. With OICCI members alone owed over Rs. 120 billion in refunds, systemic reform is a clear necessity.
OICCI suggests reducing the sales tax rate on goods from 18 percent to 15 percent over three years, in line with regional benchmarks, and harmonizing provincial rates. Petroleum products should be made taxable to allow input tax adjustments. The chamber also urges restoring zero-rated regimes for pharmaceuticals, local supplies under Export Facilitation Schemes, and calls for reducing federal excise duties on aerated drinks and juices to 18 and 15 percent respectively. It further proposes removing the 5 percent regulatory duty on telecom power equipment and exempting infrastructure for 5G deployment from duties and taxes.
On withholding taxes, OICCI recommends a 20 percent rate reduction across sectors and restoring exemption authority to tax commissioners. However, given their role as a vital revenue stream in Pakistan’s low-compliance environment, such changes would require parallel improvements in enforcement to avoid revenue shortfalls.
Sectoral reforms span energy, dairy, pharmaceuticals, telecom, and more. For the energy sector, OICCI recommends restoring the taxable status of petroleum products, clarifying condensate taxation, and allowing export of surplus materials. In dairy, lower sales tax on packaged milk and exemption on infant nutrition inputs are urged to support affordability and address malnutrition. The pharmaceutical industry calls for restoration of zero-rated status and elimination of the 3 percent value-added tax on imported medicines.
Telecommunication companies request exemption from withholding taxes, a harmonized tax framework, and relief on 5G-related duties. The tobacco industry seeks rationalized excise rates and rigorous enforcement of track-and-trace systems to curb illicit trade. Beverage producers want lower excise duties to boost sales and support agriculture, while automakers call for reduced sales tax on local vehicles and lower withholding taxes on dealer transactions. Banks, insurers, and chemical and fertilizer manufacturers seek simplified tax treatments, better recognition under accounting standards, and input tax adjustability.While these sectoral measures are intended to stimulate growth, critics may view them as favouring special interests
To promote sustainability and domestic production, OICCI recommends tax credits and depreciation incentives for green investments, locally manufactured machinery, and the use of indigenous raw materials. It also proposes incentivizing the cultivation of strategic crops such as palm oil and oilseeds to reduce import dependence. It proposes that the first-time listed companies should be eligible for a 10 percent tax credit or rate reduction, and exporters from emerging sectors should receive a 20 percent tax credit on incremental exports for five years.
For individual taxpayers, OICCI proposes abolishing the 10 percent surcharge on annual incomes exceeding Rs10 million for compliant taxpayers and raising the taxable income threshold to Rs1.2 million.
Far from being just tactical adjustments, OICCI’s proposals reflect a long-term vision for tax policy reform. One of the most transformative suggestions is the establishment of a Federal Revenue Authority to consolidate federal and provincial tax collection. If implemented, this could significantly reduce compliance burdens and resolve jurisdictional overlaps. However, this move would require broad federal-provincial consensus, particularly as provinces like Sindh and Punjab are unlikely to easily relinquish post-18th Amendment fiscal autonomy over service taxes.
The chamber further emphasizes the use of targeted tax credits to shape responsible business behaviour—supporting exports, green energy, and sustainable production. It also calls for broadening the tax base to include all sources of income, including those from agriculture and real estate. Yet, these politically sensitive reforms have historically faced resistance due to entrenched interests and lack of bipartisan commitment.
OICCI proposals offer a well-articulated roadmap for simplifying taxation, expanding the base, and fostering inclusive economic growth. It providesan opportunity to boost fiscal efficiency and investor confidence. However, successful implementation of such broad reforms requires political will, institutional capacity, and policy continuity. In an economy weighed down by fiscal constraints and systemic resistance, the path from policy proposal to progress remains a test of governance and resolve.