Tax bar says punitive withholding taxes have turned into a revenue collection tool instead of improving documentation and compliance
The Karachi Tax Bar Association (KTBA) has urged the Federal Board of Revenue (FBR) to abolish higher withholding tax rates imposed on non-filers and adopt stronger enforcement measures to expand Pakistan’s tax net.
In its budget proposals for 2026-27, the KTBA said the Tenth Schedule of the Income Tax Ordinance, 2001 was originally introduced to identify individuals and businesses operating outside the documented economy through higher withholding tax rates.
According to the association, the FBR has likely collected sufficient taxpayer data over the years under the existing regime, making the continued imposition of elevated withholding taxes increasingly ineffective and counterproductive.
The tax bar stated that the higher tax rates on non-filers have gradually transformed into a revenue-generation mechanism rather than serving their original purpose of encouraging tax compliance and documentation.
The KTBA recommended that the FBR either phase out or completely abolish the Tenth Schedule and replace it with modern, targeted enforcement strategies aimed at broadening the tax base.
The association proposed that tax authorities focus on digitisation, risk-based audit systems and technology-driven enforcement mechanisms to identify and pursue non-filers more effectively.
It stressed that the FBR should prioritise bringing undocumented individuals and businesses into the formal economy instead of relying heavily on punitive withholding taxes.
The KTBA warned that the continuation of higher tax rates on non-filers could discourage economic activity, increase the burden on compliant taxpayers and fail to attract many potential taxpayers into the documented sector.
The association further noted that data-driven compliance systems and digital monitoring tools would provide a more sustainable and business-friendly approach for long-term revenue growth compared to excessive taxation measures.
The recommendations are part of the KTBA’s broader proposals for the Federal Budget 2026-27 aimed at improving tax administration, enhancing compliance and creating a more efficient taxation framework in Pakistan.
