The Overseas Investors Chamber of Commerce and Industry (OICCI) has formally proposed a structured, three-year plan to phase out Pakistan’s minimum turnover tax, arguing that it imposes a significant burden on businesses, particularly those operating with thin profit margins. The recommendation is included in the OICCI’s comprehensive tax proposals submitted to the Federal Board of Revenue (FBR) for the federal budget for fiscal year 2025–26.
Turnover Tax’s Impact on Low-Margin Businesses
The OICCI has specifically raised concerns regarding Section 113 of the Income Tax Ordinance, 2001, which allows for the imposition of a turnover tax on companies irrespective of their actual profitability. The chamber emphasized that in the current challenging economic environment, marked by high inflation, currency volatility, and rising energy costs, this tax creates an undue burden on businesses that are already diligent in their tax compliance.
“Companies are struggling to earn profits, and the tax on turnover, even in the absence of income, discourages investment and growth,” the OICCI stated in its submission. The chamber highlighted that this tax is particularly problematic for sectors characterized by large turnovers but very low profit margins, such as oil marketing companies, refineries, electricity distribution companies, telecom operators, and cable manufacturers.
The OICCI also pointed out that the minimum turnover tax effectively results in double taxation for companies already subject to tax under Section 113C. This section taxes companies at the higher of 29% of their net taxable income or accounting profits, creating an additional levy on businesses already contributing significantly to the exchequer.
Proposed Three-Year Phase-Out Plan
To alleviate the pressure on these businesses, the OICCI has put forth a concrete proposal for a gradual reduction and eventual elimination of the turnover tax. For the fiscal year 2025–26, they recommend reducing the turnover tax rate to 0.25% specifically for capital-intensive, low-margin sectors like refineries and oil marketing companies.
The proposal outlines a complete phase-out of the turnover tax by the fiscal year 2027–28, with the following suggested rates:
- 2025–26: 0.25%
- 2026–27: 0.125%
- 2027–28: 0%
In addition to the phase-out, the OICCI has urged the FBR to extend the period during which businesses can adjust excess minimum turnover tax paid from the current three years to five years. This extension would provide companies with greater flexibility in managing their tax credits and improving their financial planning.
The OICCI believes that implementing these proposals would align Pakistan’s taxation policy more closely with economic realities and foster sustainable business practices. The chamber stressed the importance of supporting industries that, despite operating on narrow profit margins, play a vital role in job creation and contribute significantly to national revenues.
