ISLAMABAD:

To get rid of the undue additional 5.5% taxes imposed to force unregistered businesses to get registered, Pakistan’s documented dairy sector has proposed an 18% sales tax on printed price, which will also discourage tax evasion.

As an alternative, the industry is seeking a reduction in the standard sales tax from 18% to 10%, if the government is not willing to shift to tax determination on the basis of printed prices of milk, infant formula and other dairy products, say industry people. The development comes at a time when the United States is encouraging established Pakistani businesses to invest under the SelectUSA banner as part of efforts to promote manufacturing in the US. However, in a background briefing this week, US embassy officials said that high documentation requirements for taking investment abroad were slowing the process.

High taxes, high energy prices and non-tariff barriers like delays in approval for import and export are among the top concerns flagged by almost every major company doing business in Pakistan.

The US embassy highlighted the investment opportunities days before the SelectUSA Investment Summit, the premier US foreign direct investment event, which will be held in Maryland from May 3-6, 2026. It draws over 5,500 attendees, including international investors, government officials, and economic developers, facilitating over $400 billion in investment. While competition is growing around the globe to attract foreign investment, major local and foreign firms have complained about high taxes and bureaucratic hurdles to making investment decisions. The dairy sector, which has been badly suffering for the past four years, is urging the government to review its heavy taxes that have crippled their business. The sector pays 18% standard sales tax, another 4% for selling to unregistered persons and 2.5% withholding tax for selling goods to unregistered retailers.

The cumulative impact is roughly 25% against the standard 18% sales tax while it is the job of the FBR to register businesses, say the industry people.

Some of the leading multinational companies have now proposed to the government to move their products from the value addition-based 18% tax to 18% GST under the Third Schedule, charged on printed prices. This will save them from the additional 4% tax and 2.5% withholding tax. However, the sector will still be paying 1% withholding tax, leaving the net benefit at 5.5%. Taxes on dairy, milk, infant formula and many other products are charged in the value-added mode but over Rs2.5 trillion fast moving consumer goods are treated under the Third Schedule. It makes it mandatory to print the retail price on packaging.

However, Pakistan has already agreed with the IMF that it will not reduce taxes on any sector until it finds alternative avenues to offset the negative impact. In such a situation, the shift to printed prices may be the only option instead of reducing the rate to 10%.

In recent years, the government has introduced some additional taxes on unregistered and non-filing retailers in the hope that these will force the retailers to register with the government and file income tax returns. However, this has not happened. It has instead resulted in increased complexity and other negative consequences. The current standard sales tax system is complex. There are multiple stages at which sales tax is collected from various parties forming part of the supply chain – the manufacturing company, distributor, retailer and consumer. These layers add complexity, which is against the ease of doing business.

Since the Third Schedule requires the printing of retail price, the tax base becomes clear and difficult to manipulate through supply-chain discounts, transfer pricing, or undervaluation, say tax experts and the industry people. The additional taxes, especially the 4% further tax, have instead resulted in companies having to absorb partial or full liability of the extra taxes to protect retailer margins or face the risk of retailers not stocking their products. Meanwhile, in the background briefing, the US embassy highlighted the opportunities for investing under the SelectUSA banner. It will be the 12th annual summit. To a question, a US embassy official said that Pakistan’s regulations for outbound investment were a bit complex because of higher documentation requirements and hierarchical approval processes. Pakistan takes time to give approvals but there has never been a case where investment in the US by Pakistani businesses is denied, said the official.

Currently, the central bank has the authority to allow the outflow of dollars for a certain limit and in case of major investment, the Economic Coordination Committee of the cabinet gives the permission. The embassy official said that Pakistani businesses could take advantage of the $29 trillion market size and the highest household spending power in the world. The US has free trade agreements with 14 nations and manufacturers can export goods to these countries at very low duties.