Phasing Out Super Tax to Unlock Investment and Boost Jobs

Pakistan’s economy stands at a critical juncture. While the government continues to seek investment, boost employment, and revive growth, certain tax policies are working at cross purposes with these goals. One such example is the Super Tax, which continues to weigh heavily on the formal business sector and discourage new investment. The Super Tax was introduced as a temporary measure to meet fiscal needs. However, its repeated extensions and widening scope have made it a recurring burden on the corporate sector. It now affects over 15 industries, many of which are key drivers of employment, exports, and foreign direct investment (FDI). What was intended to be a short-term fix has become a long-term drag on economic activity. The Super Tax has had a cascading impact across several key industries that form the backbone of Pakistan’s formal economy. In the textile sector which is one of Pakistan’s largest employers and export drivers, the effective tax rate for exporters now exceeds 43% of profits, with total taxation (including capital gains) surpassing 57% in some cases. The All-Pakistan Textile Mills Association (APTMA) has strongly opposed the continuation of this tax, stating that it discourages domestic value addition and undermines the country’s export potential. Similar concerns have emerged in the cement sector, where dispatches fell by over 25% in August 2024 due to a combination of the Super Tax and a 100% hike in Federal Excise Duty. This excessive tax burden sends a negative signal to potential investors, particularly in a macroeconomic environment already suffering from high inflation, policy unpredictability, and a contracting GDP.  The fertilizer industry, critical to national food security, has warned that increased excise duties and the continuation of the Super Tax will further inflate production costs, with recent hikes leading to an increase of Rs125 to Rs 470 per bag on key agricultural inputs. Even more concerning is the impact on sectors like oil and gas, chemicals, and steel, where the Super Tax has eroded profit margins significantly. For instance, net profits fell across these sectors despite previous resilience – oil and gas firms saw declines from 8.7% to 8.2%, steelmakers from 9% to 3.3%, and chemical manufacturers from 11.5% to 10.4%. The cumulative effect is clear: industries that should be propelling Pakistan’s economic recovery are instead being weighed down by unsustainable tax policies. This data and industry feedback point to a clear conclusion: the Super Tax is dampening business sentiment. It adds to the overall tax burden and narrows the financial space for companies to invest in expansion, innovation, and job creation. In many cases, it also leads to increased reliance on informal arrangements, widening the gap between documented and undocumented sectors of the economy. A large share of Pakistan’s foreign investors advocates the phased withdrawal of Super Tax. The Super Tax should be phased out completely over the next two years, starting with a 50% reduction in 2024 and full withdrawal by 2025. There is sound economic reasoning behind this suggestion. Higher corporate taxes reduce after-tax profits and lower the return on investment. This, in turn, discourages both local and foreign investors from allocating capital to Pakistan. Moreover, the unpredictability surrounding tax policy, especially frequent changes in rates and rules, adds a layer of uncertainty that businesses try to avoid. Abdul Aleem, Chief Executive & Secretary General, OICCI stated, “Phasing out Super Tax over the next three years, starting with a reduction to 6 percent in 2025–26, then 3 percent in 2026–27, and full elimination by 2027–28, will significantly ease the financial burden on compliant taxpayers. This move will enhance Pakistan’s business competitiveness and send a strong signal to investors about the government’s commitment to fiscal predictability and economic growth.” By phasing out the Super Tax, the government can send a strong signal to investors that Pakistan is serious about creating a stable and growth-friendly tax environment. A reduced tax burden would allow companies to channel more resources into business development, plant and machinery upgrades, workforce expansion, and skill development. All of these areas are essential to long-term economic recovery. It is also worth noting that Pakistan’s corporate sector already faces one of the highest effective tax rates in the region. In many cases, large taxpayers contribute through income tax as well as through advance taxes, withholding taxes, and sector-specific levies. The Super Tax, instead of broadening the base, increases pressure on the same group of compliant taxpayers, potentially pushing some toward offshoring or scaling down operations. The case for eliminating the Super Tax is further strengthened by the need to promote equity in taxation. The current structure penalizes the documented sector while leaving large swathes of the informal economy untaxed. This continues to distort competition while reducing the incentive for new businesses to enter the formal fold. Rebalancing the tax structure to focus on documentation, compliance, and broadening the tax net, rather than squeezing existing payers, would go a long way in creating a healthier economic environment. The Super Tax has outlived its usefulness. A gradual phase-out is both a pragmatic and growth-oriented step. It would help unlock investment, create jobs, and improve Pakistan’s competitiveness in the region. For a country seeking to reposition itself as a viable destination for capital, removing such policy hurdles is essential. This article is authored by Zirwa Zainab, a freelance writer specializing in income tax policy and economic affairs.