The Karachi Chamber of Commerce and Industry (KCCI) has strongly advocated for the revival of the Final Tax Regime (FTR) for the export sector in its comprehensive budget proposals for the fiscal year 2025-26.
The leading business chamber highlighted the significant difficulties faced by exporters following the government’s decision to transition from the FTR to the Normal Tax Regime (NTR), a change implemented through the Finance Act 2024.
Challenges Under the Normal Tax Regime
According to the KCCI, the shift away from the simplified FTR, which imposed a flat tax rate of 1% on turnover for exporters, to the more intricate NTR structure, taxing profits at 29%, has substantially increased the compliance burden on the export industry. Exporters are now grappling with amplified documentation requirements and procedural complexities that are negatively impacting their operational efficiency and financial viability.
The Chamber noted that this transition has disrupted the overall ease of doing business environment and introduced administrative bottlenecks, ultimately hindering the transparency and global competitiveness of Pakistan’s vital export sector.
Concerns Over FBR’s Audit Capacity
The KCCI further raised concerns regarding the Federal Board of Revenue’s (FBR) capacity to effectively audit the increased volume of transactions and complex reporting now required under the NTR for exporters. They argued that this situation places an unnecessary strain on both the business community striving for compliance and the tax collection machinery itself. In light of these challenges, the Chamber earnestly urged the government to reconsider its current policy and specifically reintroduce the FTR for export-oriented businesses.
Objectives Behind Reinstating FTR
In its formal submission, the Karachi Chamber outlined two primary objectives driving its recommendation to reinstate the FTR:
- Simplification and Reduced Audit Reliance: To streamline the taxation process for exporters and decrease their dependence on cumbersome audits by the FBR, particularly acknowledging the Board’s existing resource constraints.
- Enhancing Ease of Doing Business: To improve the overall ease of conducting business in Pakistan, thereby encouraging more enterprises to formalize their operations and actively contributing to the growth of the nation’s crucial export sector.
Given Karachi’s pivotal role as the economic engine of Pakistan, the recommendations put forth by the KCCI carry considerable weight within policy-making circles. Industry leaders in the city and across the country are expressing hope that the government will give serious consideration to this pragmatic proposal aimed at fostering a more business-friendly tax ecosystem through the restoration of the FTR for exporters.
