Formalization key to unlock export growth

April 16, 2026 (MLN): Pakistan’s export growth will remain constrained unless the country’s large informal sector is brought into the formal economy, Federal Minister for Commerce Jam Kamal Khan said, stressing that formalization is essential to enhance export performance, broaden the tax base, and improve manufacturing quality.

He expressed these views during a meeting with Mohammad Haris Agar, Director of Agar International (Pvt) Limited, where discussions focused on Pakistan’s taxation system, trade structure, and economic documentation challenges, according to a statement issued on Thursday.

During the meeting, it was highlighted that despite Pakistan’s large economic base estimated at around Rs15 trillion in revenue generation overall tax collection remains constrained due to a narrow tax net and weak enforcement, according to APP.

Large segments of the economy, including agriculture, retail, and small businesses, continue to operate outside the formal system, increasing the burden on compliant and registered sectors.

The Minister noted that this structural imbalance discourages growth, as documented businesses face higher taxation and compliance costs while undocumented operators remain outside the regulatory framework.

He emphasized that without incentives and reforms to encourage voluntary compliance, progress toward a documented economy would remain slow.

The discussion also highlighted disparities in the taxation structure between commercial importers and industrial sectors, where both are often treated similarly despite differences in operational models and value addition.

It was observed that reliance on upfront taxation and limited traceability mechanisms creates inefficiencies and fails to accurately capture value addition across supply chains.

Haris Agar pointed out that although policy frameworks exist to distinguish between sectors, ground-level realities often show dominance of commercial activity with limited industrial value addition in certain segments, reflecting gaps between policy intent and implementation.

Both sides agreed that transitioning toward goods-based taxation, improved documentation, and stronger 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 expand the tax base but also strengthen Pakistan’s export competitiveness and support long-term industrial development.

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