Pakistan’s sky-high taxes, super tax blamed for sluggish investment growth

Pakistan’s soaring corporate taxes, coupled with a controversial “super tax,” are being blamed for discouraging both domestic and foreign investment, raising concerns over the country’s ability to spur economic growth.

Business leaders and government officials say high tax rates, inconsistent policies, and rising production costs have created a challenging environment for investors, particularly in the manufacturing and export sectors.

In the latest episode of On My Radar, Kamran Khan highlighted these concerns, quoting SIFC National Coordinator Lieutenant General Sarfraz Ahmed. Speaking at the Pakistan Business Council’s “Dialogue on Economy” seminar, Lt. Gen. Sarfraz detailed why local and foreign direct investment remain limited. He emphasized that until income tax rates are reduced and the corporate “super tax” abolished, new investment in the manufacturing sector is nearly impossible.

Super tax a major barrier

Lieutenant General Sarfraz pointed out that the additional 10% “super tax,” originally intended as a temporary measure, has been made permanent. Reflecting the concerns, he noted that with a 29% corporate tax, 10% super tax, plus worker welfare and dividend taxes, Pakistan’s effective total tax rate has reached almost 50%, placing a heavy burden on businesses.

He further proposed that boosting large-scale manufacturing and exports requires not only lowering taxes but also reducing energy tariffs, improving the ease of doing business, and making production costs competitive. “Whenever we talk about export-led growth - whether in refineries, chemicals, petroleum, value-added industries, or textiles - investors immediately evaluate economic stability, currency fluctuations, energy costs, and interest rates,” he said.

Lieutenant General Sarfraz also acknowledged that inconsistent policies remain a major barrier to investment. “Until local investors gain confidence, foreign investors will not come in,” he emphasized, highlighting the need for stable, predictable economic policies.

SIFC mandate and investment challenges

While outlining the challenges facing Pakistan’s economy, Lieutenant General Sarfraz recalled that the SIFC was established on June 20, 2023, to remove obstacles to economic growth through a “one-window, one-stop” system.

Its initial mandate was to attract billions of dollars from Arab investors across agriculture, IT, minerals, mining, and livestock sectors and accelerate new projects. Over time, this mandate expanded to Europe and the United States. At one point, all matters requiring federal cabinet approval were first presented to the SIFC.

Despite these efforts, foreign direct investment has remained stalled at around $1.5 billion over the past three years. Private investment in the manufacturing sector has also fallen sharply, from PKR 706 billion in 2019 to PKR 377 billion in 2025, even with SIFC’s oversight.

IMF recommendations

The International Monetary Fund (IMF), in its Governance and Corruption Diagnostic Assessment over the past two years, has pointed out that poor governance and corruption consume 5-6.5% of Pakistan’s annual GDP.

The IMF has recommended simplifying the tax system, reducing rates and withholding taxes, easing regulatory burdens, fully digitizing public procurement, removing privileges for influential government entities, and publishing SIFC’s annual reports with all incentives transparently disclosed.