LCCI warns of tough economic year ahead, calls for balanced tax approach

ISLAMABAD — Ali Imran Asif, Senior Executive Committee Member of the Lahore Chamber of Commerce and Industry (LCCI), has cautioned that Pakistan’s economy faces a challenging year ahead, with fiscal year 2025-26 expected to bring serious obstacles.

Asif pointed out that while the Federal Board of Revenue (FBR) has made notable strides in revenue collection, the growth is driven primarily by increased taxation on existing taxpayers, rather than expanding the tax base. Combined with rising government expenditures, this could make it difficult to meet the fiscal target of a 3.9% budget deficit for the year.

The International Monetary Fund (IMF) programme continues to closely monitor Pakistan’s financial discipline, with this deficit target remaining a key focus. Asif emphasized that despite the country’s considerable population and nuclear capability, Pakistan is not progressing at the pace required for meaningful growth.

“We are moving in the right direction in certain areas, but the speed is far from enough. Until all sectors contributing to the economy move in unison and with urgency, sustainable development will remain out of reach,” he said. He stressed the need for a more balanced approach that does not burden already documented sectors, while vast parts of the economy remain untaxed.

Other industry leaders have echoed these concerns. Muhammad Riaz, a representative from the export sector, highlighted that the FBR’s record collections come from a shrinking industrial base, as factories struggle with high electricity costs, unreliable gas supply, and the volatility of the rupee.

Last fiscal year, Pakistan’s exports stood at $32 billion, far below potential, while Bangladesh, with a smaller population, exported goods worth over $48 billion. Economists link Pakistan’s weaker performance to high production costs and an unbalanced tax regime.

“When you have a tax system that collects more from those already in the net and fails to document the massive informal economy, you create an uneven playing field,” said Ahmad Raza, an international trader.

Business owners suggest broadening the tax base by bringing untaxed segments, such as wholesale markets, real estate investors, and parts of the services sector, into the system. This, they argue, could generate significant revenue without burdening industries further.

Industry representatives also urged the government to cut unnecessary expenditures, particularly those tied to administrative costs and loss-making state-owned enterprises. They stressed that the government must share the burden of austerity with the public sector, rather than placing it entirely on taxpayers and businesses.

The business community believes that broadening the tax net and using modern technology to identify untaxed income streams could create a fairer system and restore trust. However, many remain concerned that fiscal year 2025-26 may bring more of the same challenges: a narrow tax base, reliance on indirect taxes, and an FBR focused more on IMF benchmarks than a progressive, equitable taxation system.

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