ISLAMABAD: The Institute of Chartered Accountants of Pakistan (ICAP) has proposed major tax reforms for the upcoming federal budget 2026-27, including changes to the collection of additional sales tax through electricity and gas bills and the introduction of a dedicated tax regime to attract foreign investment.
ICAP Seeks Review of Additional Tax on Utility Bills
In its budget recommendations, ICAP urged the government to amend S.R.O. 1222(I)/2021, under which electricity and gas distribution companies collect additional sales tax from unregistered commercial and industrial consumers.
Currently, industrial consumers who are not registered for sales tax are charged an additional 17 percent sales tax through their utility bills. Commercial consumers also face extra tax ranging from 5 percent to 17 percent depending on their consumption levels.
ICAP argued that the existing mechanism is causing unintended tax burdens for many compliant and exempt entities due to data mismatches and administrative challenges.
According to the institute, utility connections are often registered in the names of property owners rather than actual business operators. This creates discrepancies with the Federal Board of Revenue (FBR) database, resulting in registered taxpayers being incorrectly classified as unregistered.
The institute noted that large organizations, including banks, insurance companies, telecom firms, multinational corporations, and industrial groups, frequently operate through multiple branches and facilities that may not be individually reflected in FBR records. Consequently, these entities may be subjected to additional tax despite being fully compliant.
ICAP also highlighted delays in updating taxpayer information within the FBR database, which can cause businesses to continue facing extra tax charges even after completing registration requirements.
Furthermore, the institute pointed out that various organizations exempt from sales tax registration—including government departments, defense institutions, social sector organizations, diplomatic missions, hospitals, cottage industries, retailers, and entities covered under the Sixth Schedule of the Sales Tax Act—may still be charged additional tax under the current framework.
ICAP emphasized that revising the notification would help ensure that only genuinely unregistered taxable persons are subject to the levy while reducing unnecessary compliance costs and administrative complications.
ICAP Proposes Special Tax Framework for Foreign Investors
Separately, ICAP recommended the introduction of a dedicated tax schedule aimed at attracting foreign direct investment (FDI) into export-oriented manufacturing sectors.
The proposed framework would offer eligible foreign investors a package of tax incentives, legal safeguards, and clearly defined eligibility criteria designed to encourage long-term investment commitments in Pakistan.
A key feature of the proposal is a guarantee of income tax policy stability for at least 10 years from the commencement of operations of qualifying industries. ICAP believes that a predictable and consistent tax environment is essential for attracting international investors.
The institute also suggested linking incentives to broader economic objectives, including minimum investment thresholds, job creation requirements for Pakistani workers, and mandatory technology transfer commitments.
In addition, ICAP recommended introducing supporting legal provisions across relevant laws to provide greater regulatory certainty and protection for foreign investors.
According to the institute, stronger investment incentives are necessary to attract capital into export-led industries that can generate employment, increase exports, promote technology transfer, and support sustainable economic growth.
The recommendations come ahead of the federal budget 2026-27 as the government seeks to boost investment inflows, expand the tax base, and strengthen economic recovery. Analysts believe that a stable and transparent tax regime could significantly improve Pakistan’s attractiveness as a destination for foreign investment.
