The Institute of Chartered Accountants of Pakistan (ICAP) has proposed a series of tax reforms in Budget 2026-27 aimed at reducing the tax burden on salaried individuals, easing compliance for businesses, protecting taxpayer rights, and removing ambiguities in the taxation of builders and developers.
In its budget recommendations, ICAP highlighted that inflation and repeated tax policy changes have increased financial pressure on taxpayers while creating compliance challenges across various sectors of the economy.
A key proposal relates to tax relief for salaried individuals. ICAP noted that salary tax slabs and thresholds have largely remained unchanged despite significant inflation over the past several years. As a result, many low and middle-income earners have been pushed into higher tax brackets even though their real purchasing power has declined.
The institute has recommended increasing the minimum taxable salary threshold from Rs600,000 to Rs1.2 million annually and introducing automatic annual adjustments to tax slabs based on Consumer Price Index (CPI) inflation. According to ICAP, inflation-linked tax brackets would prevent employees from paying higher taxes solely due to inflation-driven salary increases and provide much-needed relief to the salaried class.
For non-filers, ICAP has proposed revising the withholding tax regime on cash withdrawals. The institute recommended increasing the daily cash withdrawal threshold from Rs50,000 to Rs75,000 under Section 231AB of the Income Tax Ordinance, citing inflation and higher business cash-flow requirements.
At the same time, ICAP suggested increasing the withholding tax rate on cash withdrawals by non-ATL persons to 1.5 percent to maintain pressure on non-filers to become active taxpayers while reducing unnecessary tax deductions on routine transactions.
The institute has also sought stronger safeguards for taxpayers during audits and inspections by the Federal Board of Revenue (FBR). ICAP proposed that tax authorities should be required to provide at least 48 hours’ prior notice before entering business premises for inspections, except in cases involving credible evidence of tax fraud or concealment of income.
In addition, ICAP recommended that audit selection under Section 177 should be conducted exclusively through a transparent, computerized risk-based system instead of discretionary selection. The institute believes such reforms would reduce perceptions of harassment, improve transparency, and strengthen taxpayer confidence in the tax system.
For Pakistan’s real estate and construction sector, ICAP has called for greater clarity in the taxation framework for builders and developers under Section 7F of the Income Tax Ordinance. The institute argued that recent legislative changes have created uncertainty regarding the calculation of tax liability and advance tax obligations.
ICAP proposed detailed rules for determining taxable income under Section 7F and recommended aligning advance tax provisions with the new sales-value-based taxation regime. According to the institute, these amendments would simplify compliance, reduce legal ambiguities, and improve tax administration within the construction sector.
The proposals form part of broader recommendations submitted ahead of Budget 2026-27 and are aimed at creating a fairer, more transparent, and business-friendly tax environment. If accepted, the measures could provide meaningful relief to salaried employees, improve taxpayer protections, and streamline taxation for businesses and the real estate sector.
