Leading tax practitioners and legal experts convened at a post-budget seminar to dissect the federal budget 2025-26, voicing significant concerns over its implementation challenges and potential constitutional implications. Speakers at the event, organized by the Karachi Tax Bar Association (KTBA), highlighted various contentious aspects of the new fiscal roadmap.
The seminar featured prominent figures including Abid H Shaban, advocate, Supreme Court of Pakistan; Haider Ali Patel, Partner, EY Ford Rhodes; Adnan Mufti, Partner, Moore Shekha Mufti; Muhammad Raza, Partner, AF Ferguson & Co; and Ali A Rahim, President, KTBA. Zubair Bilal, Chief Commissioner IR-LTO Karachi, attended as chief guest, with Anwar Kashif Mumtaz, President of Pakistan Tax Bar Association (PTBA), and Abdul Qadir Memon, Chairman PTBA Academy of Taxation, serving as guests of honour.
Challenges in Digital Economy Taxation
Speakers acknowledged Pakistan’s entry into digital economy taxation as the most significant development in the Finance Bill. They noted the introduction of two major digital tax measures: a five percent Digital Presence Proceeds Tax on foreign vendors with significant digital presence in Pakistan, and varying rates of 0.25 percent to two percent on domestic digital transactions.
However, the experts were critical of the e-commerce taxation framework, labeling it “another shortcut and compromise” akin to previous failed measures. They warned that the abrupt rollout of these provisions without proper accompanying rules has created substantial implementation challenges for businesses.
Multiple technical issues plaguing the e-commerce tax structure were highlighted, including questions surrounding the constitutional validity of taxing “digitally delivered goods” and ambiguities regarding whether essential items like groceries fall under the two percent tax rate. Practical implementation problems were also cited, such as requirements for parallel bookkeeping, handling post-sale returns, and the unrealistic expectation for banks and couriers to resolve customer disputes.
Expanded FBR Powers Raise Harassment Concerns
Another major area of concern for the tax experts was the “unprecedented expansion” of tax administration powers. They expressed particular apprehension about new recovery provisions that allow immediate tax collection once matters are decided by higher courts.
“The statute of limitations for amendment orders has been eliminated, while new powers allow FBR to attach bank accounts and assets just seven days after High Court orders favouring the tax department,” one speaker noted, expressing alarm over the swiftness and broad scope of these new authorities.
The government’s proposal to introduce the option of posting Inland Revenue Officers at business premises for monitoring also raised serious concerns about potential harassment and corruption, especially given the FBR’s already extensive search and seizure powers.
Pension Taxation and Salaried Relief
While the Finance Bill provides some relief through tax rate reductions for salaried individuals under various income slabs and reduced surcharge rates, tax experts pointed out a significant alteration in pension taxation. All previous exemptions on pension receipts have reportedly been withdrawn, with only the first Rs 10 million remaining tax-free for employer pensions. This change could have substantial implications for retirees.
These detailed critiques from the tax and legal community underscore the need for careful consideration and potentially further refinements to the Finance Bill 2025-26 as it moves towards final approval, ensuring its practical applicability and constitutional soundness.
