Amidst increasing pressure on compliant taxpayers, the Karachi Chamber of Commerce and Industry (KCCI) has submitted comprehensive budget proposals for fiscal year 2025-26, strongly advocating for the expansion of Pakistan’s tax base to include an estimated 4.6 million unregistered industrial and commercial entities. The Chamber argues this is crucial to alleviate the burden on existing taxpayers and address revenue shortfalls.
The proposals, forwarded to the Ministry of Finance ahead of the upcoming federal budget announcement scheduled for June 2, highlight that a significant number of businesses and individuals currently operate outside the formal tax system. KCCI emphasized that these entities are traceable through readily available official data, including electricity and gas connections, vehicle and property registrations, and banking and travel records.
Untapped Potential in Existing Data
KCCI pointed to data from the National Electric Power Regulatory Authority (Nepra) as a key indicator of this untapped potential. According to Nepra data up to June 2024, there were 4.6 million commercial and industrial electricity connections nationwide, in stark contrast to only 396,383 entities registered for sales tax.
The Chamber urged the government to leverage such datasets from utility providers like Wapda and K-Electric to identify and facilitate the registration of these unregistered businesses. Integrating them into the tax net, KCCI believes, would not only boost revenue collection but also reduce the need for measures like the Further Tax and foster a more equitable and compliant tax environment.
FBR Faces Collection Challenges Despite Improved Compliance
The call for broadening the tax base comes as the Federal Board of Revenue (FBR) continues to face challenges in meeting its collection targets, despite an increase in tax return filers. As of November 6, 2024, the FBR had received 5.215 million tax returns, marking a substantial 76% increase compared to the 2.959 million filed during the same period in 2023.
However, this improvement in compliance did not fully translate into achieving revenue targets. The FBR collected Rs 9,309 billion during July-April of FY 2024-25, falling short of its target of Rs 10,130 billion by Rs 821 billion. The government had already revised the FBR’s annual target downwards for the ongoing fiscal year, from Rs 12,913 billion to Rs 12,334 billion.
Despite the revised target, a shortfall exceeding Rs 600 billion is still projected for the full year. Provisional figures suggest that the tax collection target for FY 2025-26 is likely to be raised to around Rs 14,300 billion, making the expansion of the tax base even more critical.
KCCI Proposes Targeted Relief and Policy Adjustments
Beyond advocating for the inclusion of unregistered entities, KCCI’s proposals also include recommendations for targeted tax relief and policy adjustments aimed at stimulating growth across various sectors of the economy.
Key proposals include the introduction of reforms to revitalize the real economy, the reinstatement of zero-rating for local supplies under the Export Facilitation Scheme (EFS), and the abolition of taxes on shrimp broodstock to support the seafood export industry.
The Chamber also proposed the reinstatement of zero-rating for gold, alongside permitting gold exports with a minimum of 20% value addition. Additionally, KCCI recommended the removal of motorcycle and auto parts from the third schedule, reclassifying them as intermediate goods.
For the tea industry, KCCI called for a review of existing policies and the implementation of measures to curb revenue leakages.
KCCI expressed confidence that the implementation of these recommendations would ease the tax burden on compliant businesses, incentivize growth in key sectors, and contribute significantly towards the government’s ambitious revenue targets for the upcoming fiscal year.
