The Pakistan Chemicals & Dyes Association (PCDMA) has proposed a reduction in the General Sales Tax (GST) rate and a gradual shift toward a single-digit tax regime as part of its recommendations for the federal budget 2026-27.
In its pre-budget proposals submitted to the Federal Board of Revenue (FBR), the association urged the government to simplify tax procedures, reduce compliance costs, and provide greater support to businesses operating in the documented economy.
PCDMA Chairman Salim Valimuhammad said that increasing compliance requirements and frequent audits were discouraging taxpayers and pushing many businesses toward the informal sector. He emphasized that most taxpayers are willing to comply with tax laws but often make genuine mistakes due to complex procedures and limited technical knowledge.
According to the association, the FBR should adopt a more facilitative approach by guiding taxpayers and improving awareness instead of relying heavily on notices and enforcement actions.
A key proposal put forward by the PCDMA is to reduce the GST rate from 18 percent to 16 percent in the upcoming budget, followed by a gradual transition to a single-digit GST structure. The association believes that lower tax rates would improve compliance, broaden the tax base, and ultimately enhance government revenues.
The association also called for the restoration of the Final Tax Regime (FTR) for commercial importers and the return of audit exemptions previously linked to the payment of additional sales tax. It argued that the removal of these protections has increased uncertainty and compliance costs for importers.
To address liquidity challenges faced by traders and wholesalers, the PCDMA proposed restoring Section 8B facilities for commercial importers. As an interim measure, it suggested allowing businesses to adjust up to 95 percent of output tax against input tax while requiring only 5 percent to be paid in cash.
Expressing concerns over fake invoicing, the association recommended reducing the relevant tax rate from 4 percent to 1 percent, stating that a lower rate would encourage compliance and reduce tax fraud.
On income tax matters, the PCDMA proposed reducing withholding tax on local supplies of raw materials from the existing rates of 5 percent and 5.5 percent to 2 percent and 2.5 percent, respectively. The association believes the move would encourage more businesses to remain within the documented economy.
The PCDMA further highlighted what it described as unequal tax treatment between commercial and industrial importers under Section 148 of the Income Tax Ordinance, arguing that identical imports should be taxed uniformly regardless of whether they are imported by traders or manufacturers.
Among its customs-related recommendations, the association called for the abolition of the Rs500 WeBOC token fee on goods declarations, arguing that importers are effectively paying duplicate charges following the implementation of the Pakistan Single Window (PSW) system.
The association also sought the restoration of NTN-based self-clearance facilities for commercial importers, claiming that the withdrawal of the facility has led to delays and increased administrative hurdles at customs offices.
Additionally, the PCDMA recommended discontinuing the Export Facilitation Scheme (EFS), arguing that it is vulnerable to misuse and revenue leakage. Instead, it urged the government to strengthen and accelerate the tax refund mechanism to support legitimate exporters.
The proposals are expected to be considered during the ongoing pre-budget consultations between the FBR and representatives of trade and industry ahead of the announcement of the federal budget 2026-27.
