The Senate Standing Committee on Finance and Revenue endorsed a significant proposal from the business community advocating against the extension of the sales tax exemption in the erstwhile tribal areas beyond its current expiry date of June 30, 2025.
The decision came during the committee’s pre-budget 2025-26 consultations with various stakeholders, including the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), Chambers, and Associations.
Senator Saleem Mandviwalla, Chairman of the committee, highlighted that the continuation of this exemption placed formal sectors such as steel, ghee, and cooking oil at a disadvantage. He affirmed the committee’s awareness of the issue and stated that a recommendation would be made accordingly.
Key Business Concerns and Proposals
Representatives from various Chambers of Commerce and Industry presented their budget proposals and highlighted critical issues affecting different sectors.
Karachi Chamber of Commerce and Industry (KCCI): Jawed Bilwani, President of KCCI, raised concerns about the special tax regime in the ex-FATA region, noting that it leads to a large portion of tea imports being routed through this area due to lower taxes. He also pointed out the issue of low duties and taxes on raw materials for the plastic industry, particularly polyethylene, which encourages excessive imports and subsequent sale at higher prices by manufacturers. Bilwani reiterated concerns about delayed sales tax refunds, often taking nine months despite FBR’s claim of a 72-hour processing time, stating that this, along with advance taxes, significantly increases the cost of doing business. The committee decided to address the refund issue in upcoming budget meetings.
Exporters’ Recommendations: Exporters proposed the reinstatement of zero-rating on local supplies to registered exporters under the Export Facilitation Scheme (EFS) to alleviate liquidity pressure and ensure smooth operations. They also suggested zero-rating of GST on utilities (power and gas) for EFS-registered exporters to facilitate exports, ensure adequate liquidity, and boost confidence.
Shift from FTR to NTR: The business community highlighted that the shift of exporters from the Final Tax Regime (FTR) to the Income Tax Regime (NTR) through the Finance Act 2024 has increased the compliance burden. They proposed restoring the FTR for exporters to simplify FBR audits and promote growth in documented sectors.
Advance Tax on Exports: The Lahore and Gujranwala Chambers of Commerce and Industry raised the issue of advance tax on exports, noting that the State Bank charges a one percent tax plus an additional one percent on remittances. They proposed rationalizing this tax.
Appellate Forums for Small Taxpayers: The Sialkot Chamber of Commerce and Industry voiced concern over the removal of tribunals for matters where sales tax exceeds PKR 2 million and income tax exceeds PKR 1 million, emphasizing the lack of proper appellate forums for small taxpayers. The committee assured the chamber that this matter would be taken up in the upcoming budget discussions.
Support for Young Entrepreneurs: The Sialkot Chamber also stressed the need for policies supporting the growing number of young entrepreneurs, with 600 to 700 new registrations annually.
Rawalpindi Chamber of Commerce and Industry (RCCI): Usman Shaukat, President RCCI, proposed a 15 percent GST in the upcoming budget to support struggling industries. He also suggested providing tax incentives to export-based industries meeting export targets and offering necessary financial facilities to small and medium enterprises.
Islamabad Women Chamber of Commerce and Industry (IWCCI): IWCCI urged the government to allocate dedicated funds for women entrepreneurs in the budget and called for a reduction in the PKR 50 million revenue threshold for corporate women to encourage formalization and expansion of women-led businesses.
Paper and Stationery Association: The association requested the withdrawal of taxes on stationery items, reminding the government of a previous year’s promise to eliminate these taxes in the subsequent budget cycle to ensure affordability of educational materials.
Faisalabad Chamber of Commerce: The President of the Faisalabad Chamber of Commerce highlighted that IT companies are relocating to Turkey and the UAE due to the lack of a convenient payment gateway for international transactions, negatively impacting IT export remittances. He noted that 30 IT companies from Faisalabad had already moved, stating that while the country celebrates $2.4 billion in IT exports, the potential is much higher ( upto $10-20 billion) if such issues are resolved.
Senators Sherry Rehman, Anusha Rahman Ahmad Khan, and Fesal Vawda were also in attendance, along with representatives from the Rawalpindi, Karachi, Sialkot, Faisalabad, and Lahore Chambers of Commerce and Industry.
