Turkey has sent a signal: production deserves privilege. On May 21, Turkey’s parliament passed a law with a clear economic message. First, corporate tax for manufacturing companies has been cut from 25 per cent to 12.5 per cent. Second, money, gold, foreign exchange and securities held abroad can now be brought back into Turkey under a repatriation scheme. Third, the law extends a 100 per cent corporate tax exemption on financial services export income until 2047.
Three moves. One direction. Turkey wants factories. Turkey wants capital. Turkey wants exports. The message is not hidden in policy jargon. It is written in tax rates. Turkey is making production cheaper, capital repatriation easier and export income more attractive. This is industrial policy through the tax code.
Pakistan’s corporate tax rate is not merely 29 per cent. That is only the starting point. For large companies, the super tax can push the burden to 39 per cent. For banks, the standard rate is already 39 per cent, and super tax can take it to 49 per cent. Add the alternate corporate tax, minimum turnover-based taxes, taxes on dividends and taxes on distribution of profit, and the effective cash burden can mathematically approach, and in some cases exceed, 60 per cent.
Red alert: Pakistan is taxing production as if factories are fiscal prey, not engines of growth.Does Pakistan want factories? Does Pakistan want capital? Does Pakistan want exports? Pakistan should read Turkey’s signal carefully. Because countries that reward production create factories. Countries that punish production create deficits.
Turkey is not alone. Around the world, tax policy is being used as industrial policy. Turkey is cutting manufacturing tax from 25 per cent to 12.5 per cent. Germany is moving corporate income tax from 15 per cent to 10 per cent. Portugal is bringing it down from 20 per cent to 17 per cent. Bhutan has cut corporate tax from 30 per cent to 22 per cent.
The pattern goes beyond corporate tax. India has raised the personal income-tax exemption threshold. Canada is cutting its lowest federal income-tax bracket. Greece is reducing personal income-tax rates. Vietnam has brought VAT down from 10 percent to 8 percent on many goods and services. Brazil is expanding income-tax relief for the middle class.
The direction is clear. Countries are lowering taxes where they want investment. Lowering taxes where they want compliance. Lowering taxes where they want consumption. Lowering taxes where they want growth.
Pakistan must now choose: remain a high-tax, low-investment economy or become a competitive, production-led economy. What should Pakistan do? Recommendation: Pakistan must create a 15 per cent corporate tax rate for documented manufacturing.
Pakistan must introduce a special corporate tax rate of 15 per cent for companies that manufacture, document, invest and comply. Not for traders. Not for rent-seekers. Not for paper companies. For factories. For machinery. For value addition. For exports. The concession must be conditional: higher exports, new jobs, import substitution, technology transfer and fully documented supply chains.
Pakistan must stop treating factories as fiscal prey. Pakistan must begin treating them as engines of growth.
What about the IMF? The IMF will ask one question: where is the replacement revenue? Pakistan’s answer must be clear: this is not a tax cut; this is tax redesign. Tax undocumented retail and untaxed income more effectively. Tax documented manufacturing less. Collect more from evasion. Collect less from production.
Yes, one safeguard is essential: this must not become another SRO. No discretion. No lobbying. No permanent privilege. The 15 per cent rate must be automatic, transparent and performance-based.Remember: Pakistan cannot tax factories like enemies and expect them to behave like engines.
The writer is an Islamabad-based columnist.
