Abolishing super tax key to new investment in manufacturing sector: SIFC

ISLAMABAD: The National Coordinator of the Special Investment Facilitation Council (SIFC) Lt. Gen. Sarfraz Ahmed Thursday said that without abolishing Super Tax and reducing the tax rate, luring new investment in the manufacturing sector is not possible.

While speaking at a seminar titled ‘Dialogue on the Economy” organised by the Pakistan Business Council, the SIFC National Coordinator said that the government is seriously looking at the super tax. It was an ad-hoc arrangement started some time back, and now there is an urgent need to get rid of it.

He said the corporate tax at 29 percent is also not competitive and should be brought down to 25 percent, and the inter-corporate tax must also be eliminated. He said the effective tax rate right now is touching around 50 percent.

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After paying 29 percent corporate tax, the remaining is eaten by super tax, worker welfare deductions and dividend tax, etc. He said Pakistan should encourage corporatisation, but current taxation encourages fragmentation. People split their businesses into smaller entities to escape higher tax brackets. We need to reverse that.

He said the Finance Minister and his team have done wonderfully well by saving the country from the verge of default and have stabilised the economy.

Lt. Gen. Sarfraz said what is missing from the economy is a real growth plan for which all the stakeholders of the economy should put their heads together to make it work. He said that till now, Pakistan has been following a consumption-led, debt-driven growth plan that does not work. “If we embark upon the same path again, the same results will appear again.

The balloon will burst again. People will rush to the GCC, to the USA, to development partners to get loans, rollovers, adjustments — and then settle again and move on,” he remarked.

Lt. Gen. Sarfraz said that export-led growth is the way forward. He said the usual examples are repeatedly given about Vietnam, Bangladesh and India, but we must look at them from our perspective where Pakistan stands today. “When they started their industrialisation and export-led growth, they did not have the conditions that we have right now,” he observed.

Lt. Gen. Sarfraz said Pakistan’s economy right now is mostly consumption-oriented. A population of 240 million is a great prospect for foreign and domestic investors, but everybody is looking at consumption and not exports.

He said we should ponder that reducing tariffs alone is good enough, or do we have to provide a level playing field in taxes, in energy cost, in ease of doing business, and in cost of doing business? He said the government or state alone would not be able to implement any such framework in the future unless all the stakeholders, especially the private sector, were taken on board.

He lamented that the money earned in Pakistan always finds its final destination in Dubai, London, Singapore, New York and hardly anything gets reinvested in compliance or in infrastructure.

He acknowledged the fact that with Foreign Direct Investment of 1.2 to 1.3 billion dollars has to be at least double it if not triple to around 2.5 to 3 billion dollars every year.

He said any FDI that does not bring dollars into Pakistan should be discouraged — unless it is a critical infrastructure project that takes longer to develop. As a nation, we have to decide what is good FDI and what is bad.

He pointed out that everybody is interested in airports. “Anyone who walks into the capital says, “We are ready to sign an agreement today.” And that is great — we welcome that.

But when we say, “Let’s talk about export-led growth — maybe a refinery, maybe chemicals, maybe some petroleum value-addition, maybe textile expansion,” suddenly due diligence starts. They mention interest rates, macro conditions, currency fluctuations — and everything slows down,” he observed.

He said that until and unless local investors will not start investing, no FDI will come into the country. He was of the view that because of the fragile fiscal situation, the government can think of its taxation, and the existing tax payers are the easiest prey because they are documented.

He said the finance team has a consensus that this excessive taxation structure cannot take Pakistan forward, and, hopefully, this course correction will happen as soon as the fiscal space allows. The SIFC Coordinator said that to reduce energy cost, it is essential for us to deregulate the entire energy landscape, despite the fact that it is complicated. But we have to work in that direction.

“You cannot keep energy prices high and tariffs low. You have to balance both. Both must come down,” he remarked.

He said that to attract investment, interest rates must be reduced as inflation is going down, and the monetary policy must reflect on ground reality. He said that policy distortion has also been one of the major obstacles in investment because policies changed after every two years, three years, five years — even within one government.

While elaborating the SIFC mandate, he said that it was essentially created to facilitate foreign direct investment from Saudi Arabia. It came into being around two years ago, near the end of the previous government’s term. Under the G2G framework, Saudi Arabia wanted a single window — one platform in the Government of Pakistan where proposals could be submitted and get either approved or rejected quickly.

Later, the Italian government followed. Then the mandate expanded to the GCC, Europe, USA — and eventually, anything related to the government started coming to SIFC. At one stage, anything that went to the Cabinet also went through SIFC.

Copyright Business Recorder, 2025