Federal Minister for Commerce Jam Kamal Khan said that Pakistan’s exports will remain constrained unless the country’s large informal sector is brought into the formal economy, stressing that formalization would not only enhance export growth but also increase tax revenues and improve the overall quality of manufacturing.
He expressed these views during a meeting with Mohammad Haris Agar, Director of Agar International (Pvt) Limited, where both sides discussed key challenges in Pakistan’s taxation system, trade structure, and economic documentation, said a release issued here on Thursday.
During the discussion, it was highlighted that despite Pakistan’s large economic base, revenue generation estimated around Rs15 trillion, remains limited due to a narrow tax net and weak enforcement. Large segments of the economy, including agriculture, retail, and small businesses, continue to operate outside the formal system, placing an excessive burden on compliant and registered sectors. The Minister emphasized that the current imbalance discourages growth, as documented businesses bear higher tax and compliance costs, while undocumented players remain outside the regulatory framework.
He noted that unless incentives and reforms are introduced to encourage voluntary compliance, the transition toward a documented economy would remain slow. During the meeting, disparities in the taxation structure between commercial importers and industrial sectors, where both are often treated similarly despite fundamental operational differences.
It was observed that the existing reliance on upfront taxation and limited traceability mechanisms creates inefficiencies and fails to accurately capture value addition across the supply chain.
Haris Agar underlined that while policies exist to differentiate between sectors, ground realities often reflect a dominance of commercial activity with minimal industrial value addition in certain segments, pointing to gaps between policy intent and implementation.
Both sides agreed that a shift toward goods-based taxation, improved documentation, and supply chain traceability is essential. The Minister reiterated that bringing SMEs and informal businesses into the formal economy through facilitation, incentives, and gradual reforms is critical for sustainable growth. He concluded that a more inclusive and transparent economic framework would not only broaden the tax base but also strengthen Pakistan’s export competitiveness and industrial development in the long term.