Business Recorder
EDITORIAL: That Pakistan’s business environment remains far from conducive to formal, compliant activity – pushing firms towards operating in the informal sector rather than incentivising compliance – is well recognised and extensively documented. Yet the remedies routinely prescribed for these distortions remain chronically unexecuted. A comprehensive document recently drawn up by the Pakistan Business Council (PBC) and shared with policymakers clearly sets out the structural distortions and policy failures continuing to stifle formal enterprise. As the Council notes, a long-standing governance malaise sits at the heart of this dysfunction, with Pakistani officialdom unable or unwilling to break the policy inertia preventing long-overdue structural reforms of the economy. Resultantly, the business landscape remains constrained by a narrow tax base, weak export competitiveness and chronic policy uncertainty. These conditions suppress growth and deter investment, while burdening compliant firms with excessive scrutiny and a suffocating web of regulations. A fundamental fault line runs through a deeply inequitable taxation regime. As the PBC highlights, the documented sector shoulders an effective tax burden of 55-60 percent, while large swathes of the economy remain outside the net, operating at a clear structural cost advantage. This imbalance stems from an overreliance on excessively high and frequently rising tax rates that steadily weaken incentives for compliance. Unsurprisingly, evasion becomes the rational choice when paying taxes is markedly more expensive than avoiding them, pushing firms to remain informal. Any credible effort to broaden the tax base would require lower rates, yet this basic logic remains absent from policymaking, alongside a continued reluctance to tax under-taxed sectors such as real estate and retail. Exacerbating the problem is a tax system anchored in minimum taxation on turnover, an inherently punitive mechanism requiring even loss-making firms to pay tax on revenue, something that can drive struggling businesses out of operation. This inevitably penalises compliance, discourages investment and suppresses overall economic activity by raising the cost of operating within the formal economy. The PBC’s recommendations – from withdrawing the super tax and eliminating double taxation on inter-corporate dividends to aligning corporate tax rates with regional peers and simplifying the tax refund process – warrant serious consideration. Taken together, these would encourage reinvestment, attract much-needed foreign capital and strengthen the foundations of sustainable revenue growth. Beyond the punitive tax regime, Pakistani businesses also navigate one of South Asia’s costliest operating environments, where elevated input prices, steep energy tariffs and constrained access to finance steadily erode export competitiveness. Energy, in particular, emerges as a critical pressure point: volatile pricing, unreliable supply and the absence of a credible policy framework addressing these two constraints continue to undercut industrial productivity. The need, therefore, for competitively priced power, assured supply for industry and a decisive shift towards renewable energy to stabilise costs and sustain output was never more urgent. Then there is the accelerating exodus of talent and capital, with many of the country’s most skilled professionals opting for opportunities abroad. While the PBC attributes this to high personal and capital taxation, the causes run deeper: glaring pay disparities, limited career mobility and an environment that doesn’t always reward merit have become equally potent push factors, along with a volatile political and security climate. Equally damaging is an inefficient legal landscape, where even routine matters such as contract enforcement and property registration remain cumbersome, undermining investor confidence and stifling economic activity. The PBC’s call, then, for a fundamental reset of the economy’s institutional architecture – beginning with dismantling the inequitable tax regime and punitive energy pricing, and anchored in a credible charter of economy to ensure policy continuity across political cycles – offers a pragmatic path forward. This demands urgency and political resolve, and policymakers must realise that incremental, short-term fixes are no substitute for far-reaching structural reform. Copyright Business Recorder, 2026
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