The Karachi Chamber of Commerce and Industry (KCCI) has formally appealed to the government to grant an exemption from provincial taxation for businesses that generate foreign exchange. This proposal, included in their comprehensive tax recommendations for the upcoming 2025-26 budget, aims to bolster economic stability and safeguard crucial foreign currency inflows into Pakistan.
Dual Taxation Discourages Forex Repatriation, Warns KCCI
In its budget proposals, the KCCI highlighted a significant concern regarding businesses involved in earning foreign exchange, such as Indenting Agents, Buying Houses, and similar service-oriented entities. These businesses are already subject to federal taxation, as their earnings directly impact Pakistan’s national reserves and are governed by federal laws. However, the KCCI pointed out that some provincial authorities have begun imposing taxes on the same income, leading to jurisdictional overlaps and undermining the principle of unified taxation.
The KCCI cautioned that this system of dual taxation acts as a deterrent for businesses to bring their foreign exchange earnings into the country. “Over-taxation increases the operational burden and disincentivizes the repatriation of valuable foreign exchange into Pakistan, thereby weakening our external account position,” stated a KCCI spokesperson.
Reduced Competitiveness and Offshore Parking of Funds Feared
Furthermore, the KCCI emphasized that the combined high tax burden at both federal and provincial levels diminishes the competitiveness of Pakistani businesses, particularly when compared to their counterparts in the region who operate under more favorable tax regimes. This situation could lead businesses to choose to park their foreign exchange earnings in offshore accounts, thereby reducing liquidity within the domestic market and further straining Pakistan’s already limited foreign exchange reserves.
To effectively address these challenges, the KCCI has proposed a specific exemption from all provincial taxes for businesses that actively earn and remit foreign exchange into Pakistan. The Chamber stressed that implementing such a measure would not only eliminate the issue of tax overlap but also significantly enhance the ease of doing business and encourage greater tax compliance.
Framework to Encourage Forex Retention Within Pakistan
“The objective is to build a transparent and business-friendly framework that encourages entrepreneurs to keep their foreign exchange earnings within Pakistan,” the KCCI noted. “This will not only support a stable exchange rate but also help boost investor confidence in the national economy.”
The KCCI firmly believes that by aligning tax policies with the overarching national economic objectives, the government can foster a more predictable and growth-oriented environment for enterprises that play a vital role in generating foreign exchange for the country.
