The Institute of Chartered Accountants of Pakistan (ICAP) has unveiled a bold and comprehensive set of proposals for the Federal Budget 2025-26, advocating for significant reforms aimed at both the corporate sector and the struggling salaried class. ICAP is urging the government to replace the cumbersome withholding tax regime for listed companies with a more efficient advance tax system and to provide immediate, inflation-adjusted relief for wage earners.
A Shift from Withholding to Advance Tax
In a key recommendation, ICAP has called for the complete overhaul of the current withholding tax regime for listed companies. The institute argues that despite being highly compliant taxpayers who contribute substantially to national revenues, listed corporations face increasing difficulties in obtaining tax credits.
This is often due to issues such as the non-availability of Computerized Payment Receipts (CPRs), late or non-deposit of taxes by withholding agents, or mismatches within the Federal Board of Revenue’s (FBR) electronic database.
To address these challenges, ICAP has proposed that the FBR consider eliminating the burden of the withholding tax regime for listed entities. In its place, the institute recommends a more streamlined monthly advance tax payment mechanism. Specifically, ICAP has suggested an amendment to Section 147 of the Income Tax Ordinance, 2001, to require listed companies to pay advance tax on a monthly basis rather than quarterly.
ICAP believes that such a move would profoundly simplify the taxation process, making it more efficient for both taxpayers and tax authorities. This monthly advance tax system would ensure timely revenue collection directly from companies, reducing reliance on third-party withholding agents.
The proposed change is also expected to help mitigate tax fraud risks, eliminate unnecessary documentation, and significantly improve transparency. Furthermore, ICAP highlighted that this reform would positively impact the cash flow management of listed companies by reducing excessive withholding and the associated delays in tax refunds, ultimately fostering a more business-friendly tax environment.
Inflation-Adjusted Exemptions
In a potentially game-changing proposal, ICAP has strongly advocated for immediate and sweeping relief for Pakistan’s long-suffering salaried class. The institute is urging the government to exempt salary income from taxation in direct proportion to the inflation experienced over the last two years—a move that could fundamentally redefine income tax policy in Pakistan.
ICAP argues that as inflation has relentlessly eroded purchasing power, the government must acknowledge the severe economic struggle faced by millions of salaried individuals. The current minimum taxable salary threshold of Rs. 600,000 per annum has remained frozen for two years, even as double-digit inflation has dramatically increased the cost of living. With salaries stagnating and essential costs like housing, utilities, and education soaring, ICAP warns that salaried workers are being unfairly crushed under a disproportionate tax burden.
“ICAP strongly recommends that the threshold for salary tax exemption be raised to Rs. 1,200,000,” states the institute’s budget proposal. “This adjustment is not just a fiscal necessity—it is a moral imperative.”
ICAP asserts that this dramatic revision is essential to protect middle- and lower-income earners from being unjustly pulled into the tax net merely for trying to survive. With limited avenues for tax planning and rigid fixed incomes, salaried workers are currently bearing an outsized share of Pakistan’s fiscal burden.
In its five-pronged argument for salary relief, ICAP highlights that adjusting the salary tax exemption and revising outdated slab rates would:
- Promote fairness and equality within the taxation system.
- Safeguard the real income and purchasing power of wage earners.
- Prevent a decline in consumption, which could stimulate economic activity.
- Boost economic confidence among taxpayers.
- Encourage greater voluntary tax compliance by making the system appear more equitable.
ICAP’s fiery advocacy for both corporate and individual tax reforms is expected to ignite significant debate in policy circles ahead of the FY26 budget presentation. As pressure mounts on the government to offer genuine economic relief and streamline tax processes, ICAP’s proposals could mark a pivotal turning point for Pakistan’s tax policy, aiming to transform fiscal pain into long-overdue justice and efficiency.
