The Karachi Chamber of Commerce and Industry (KCCI) has made a strong appeal to the Federal Board of Revenue (FBR) to eliminate the Minimum Withholding Tax (WHT) imposed on raw material imports by commercial importers in the upcoming federal budget for 2025-26.
In its comprehensive tax proposals, the KCCI highlighted the current WHT rates of 2% to 5.5% faced by commercial importers. The chamber argued that these rates are unreasonable given the slim gross profit margins of only 2% to 3% on raw materials, which are typically sold without any processing or alteration. The existing WHT structure, according to the KCCI, operates on an unrealistic assumption of a 30% gross profit for this sector.
Shift from Fixed Tax Regime Criticized
The KCCI pointed out that an amendment in the Finance Bill 2018-19 reclassified WHT on raw material imports as Minimum Tax, effectively removing commercial importers from the Fixed Tax Regime (FTR). This shift, the KCCI contends, unjustly penalizes tax-compliant businesses while allowing undocumented entities to continue evading their tax responsibilities.
Focus Enforcement on Informal Sector
The chamber criticized the current policy for placing the burden of tax collection on compliant taxpayers instead of the FBR actively pursuing and penalizing non-compliant entities. With the FBR’s access to taxpayer data through Sections 56A and 56B, the KCCI argued that tax enforcement efforts should be directed towards the informal sector rather than increasing the financial strain on documented businesses.
Minimum WHT Counterproductive
Calling the Minimum WHT regime counterproductive, the KCCI emphasized that it discourages formalization of the economy and undermines the objective of a fair and broad-based taxation system. The chamber recommended that the WHT on raw materials should be made fully adjustable against the actual income tax liability of importers.
Reinstating Fixed Tax for Finished Goods
In addition to abolishing Minimum WHT on raw materials, the KCCI proposed reinstating the Fixed Tax Regime for importers of finished goods and establishing a clear distinction between raw material importers (who are crucial for supplying industries) and traders of finished products.
The KCCI concluded that eliminating the Minimum WHT on raw material imports would revitalize the operations of commercial importers, provide crucial support to small and medium enterprises (SMEs), and ultimately enhance overall revenue generation through increased business activity.
