The Karachi Tax Bar Association (KTBA) has formally recommended a significant reorientation in the Federal Board of Revenue’s (FBR) tax policy strategy. The association is urging the FBR to prioritize the enforcement of tax return filing among citizens and entities rather than heavily relying on collecting higher taxes from those not registered as active taxpayers.
This key recommendation was included as part of the KTBA’s detailed proposals submitted to the FBR for the upcoming federal budget for fiscal year 2025–26.
Call for Abolition of Tenth Schedule
In its comprehensive submission, the KTBA specifically called for the abolition of the Tenth Schedule of the Income Tax Ordinance, 2001. This particular schedule imposes elevated rates of withholding taxes on individuals and entities not appearing on the active taxpayers list.
The KTBA highlighted that the original intent of the Tenth Schedule was to serve as a mechanism to identify and track potential taxpayers who were outside the formal tax system. However, according to the association, the FBR has now accumulated a substantial database of non-filers through this very mechanism.
In light of this development, the KTBA argued that the continuation of the Tenth Schedule, despite its punitive nature, no longer serves its intended purpose. Instead, they contend, it places an undue burden on the economy. “What was once a tracking mechanism has now turned into a revenue-generation tool, which contradicts the spirit in which the schedule was introduced,” the KTBA noted in its submission.
Proposing a Strategic Enforcement Approach
The association urged the FBR to adopt a more strategic and long-term approach to broadening the tax base. This proposed strategy includes leveraging digitization, utilizing data analytics for risk-based audits, and strengthening legal enforcement to actively bring non-filers into the tax net. The KTBA believes such fundamental reforms would create a more equitable system and significantly improve voluntary compliance in the long run.
Concerns Over Current Policy Distortions
The KTBA also expressed concerns that the current reliance on high withholding tax rates has inadvertently created distortions within the tax system. They argue this leads to a situation where non-filers find it preferable to pay the extra tax rather than undertaking the steps required to become compliant taxpayers. This, the association stated, ultimately defeats the entire purpose of tax base expansion efforts.
To address these issues, the KTBA has proposed that the FBR now actively pursue non-filers through targeted enforcement mechanisms rather than continuing to rely on passive revenue collection via higher rates. The association concluded that by shifting focus away from short-term revenue goals, the FBR can lay the foundation for a fairer and more sustainable tax regime that promotes compliance through accountability and modernization.
