The Karachi Tax Bar Association (KTBA) has put forth a comprehensive set of budget proposals for the fiscal year 2025-26, highlighted by a key recommendation to exempt income tax for the salaried class earning below PKR 1 million annually to ease inflationary pressures.
In their submission to the Federal Board of Revenue (FBR) Chairman, the KTBA outlined proposals covering income tax, sales tax, and crucial improvements to the digital infrastructure. These recommendations come amidst expressed concerns regarding the effectiveness of the appellate structure reforms implemented in May 2024.
“The recent amendments to appellate mechanisms have unfortunately created more confusion than clarity,” the KTBA stated, noting that “Superior courts have raised valid concerns over procedural impracticalities, leading to delays rather than the promised efficiencies.”
Key Income Tax Proposals
The KTBA’s foremost recommendation to combat inflationary burdens on low-income earners is to raise the basic income tax exemption threshold significantly from the current PKR 600,000 to PKR 1,000,000.
Additionally, the association has advocated for a reduction in the 45 percent tax slab applicable to individual income exceeding PKR 5,600,000, deeming it “too regressive.”
For the business sector, the KTBA has proposed decreasing the minimum turnover tax from 1.25 percent to 0.75 percent. They argue that this reduction would particularly benefit Small and Medium Enterprises (SMEs), startups, and businesses currently operating under challenging economic conditions or experiencing losses.
Further significant income tax recommendations include a gradual reduction of corporate tax rates to 25 percent through annual one percent decreases, the introduction of a 15 percent deductible allowance against salary income, and the restoration of various tax credits, specifically mentioning Section 65B credits for industrial investments.
Sales Tax and Digital Infrastructure
Beyond income tax, the KTBA has called for the implementation of zero-rated tax for supplies made to approved Non-Profit Organisations.
In an effort to address ongoing issues with the FBR’s digital system, the Inland Revenue Information System (IRIS), the KTBA suggested several technical improvements. These include the implementation of system-generated barcodes for sales tax correspondence and a comprehensive resolution of existing system glitches.
Reforms to Tax Appeals
To tackle widespread problems within the tax appeals process, the KTBA has proposed increasing the appeal thresholds to PKR 50 million. They also recommended the removal of payment requirements currently necessary for obtaining stays on tax demands during the appeal process. Furthermore, the KTBA has called for extending the authority of the Appellate Tribunal to grant stays for a period of up to 180 days.
