Tea importers in Pakistan are urgently calling on the government to reform the current import taxation regime, citing significant loopholes that they claim distort the formal trade market and lead to substantial annual revenue losses, estimated at up to Rs 40 billion. This was learned on Saturday, according to media reports.
In their budget proposals submitted for the Finance Bill 2025–26, the Pakistan Tea Association (PTA) highlighted critical issues within the existing tax structure for tea imports.
Concerns Over Tax-Free Imports in Tribal Areas
A major concern raised by the PTA pertains to the tax-free status granted to imports destined for Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA). The association reported that over 71,000 metric tons of tea were imported under this tax-exempt status. They pointed out the striking discrepancy between this volume and the estimated actual demand, noting that the combined population of these regions is approximately 4 million people and the volume imported is about 1,000 times greater than the demand based on a per capita consumption of 1.2 kg per year.
The PTA warned that this apparent exploitation is severely damaging the legitimate formal market, eroding government tax revenues, and forcing legal importers out of business. The association strongly urged the government not to extend the tea exemption for FATA/PATA imports in the national interest, proposing instead that an annual import cap of 4 million kilograms should be imposed to accurately reflect population-based needs.
Arbitrary MRP Valuation Criticised
PTA chairman Muhammad Altaf also voiced strong criticism regarding the enforcement of SRO 1735(1)/2024. This Statutory Regulatory Order imposes sales tax on tea at an arbitrary Maximum Retail Price (MRP) valuation of Rs 1,200 per kg, irrespective of the actual import price or the form of the product.
Mr. Altaf described the MRP-based sales tax as a “tax anomaly” that requires immediate attention. He explained that bulk tea is typically imported in large quantities, often in bags exceeding 75kg, and subsequently undergoes blending, processing, and packaging domestically. Charging sales tax based on a retail MRP at the import stage, he argued, fails to acknowledge this standard industry practice. He further highlighted that tea is imported at vastly different prices, ranging from below $1 per kg to over $3 per kg, yet the same uniform Rs 1,200 per kg valuation is applied across the board for taxation purposes. Mr. Altaf questioned the fairness of this approach, asking how low-income consumers, for whom tea is a daily staple, could be taxed at the same effective rate as high-income consumers under this system.
PTA Submits Reform Proposals
In addition to addressing the specific issues of FATA/PATA exemptions and the MRP valuation, the PTA has submitted multiple comprehensive proposals to the government. These recommendations are aimed at reducing misuse within the import system and restoring fairness and parity in the tea trade.
The proposals include the outright withdrawal of the controversial MRP clause for sales tax, the abolition of export re-exports conducted under the Export Facilitation Scheme (EFS), which the PTA believes is being misused, and the implementation of enhanced oversight mechanisms at dry ports, with a request for the PTA’s active involvement in verifying import consignments.
Call for Tariff Rationalisation
The PTA has also recommended a significant rationalisation of tariffs on tea imports. Their proposal is to reduce the tax burden with the aim of decreasing the incentive for tax evasion and encouraging formal channels.
Specific tariff reduction recommendations include:
- Customs Duty: Proposed reduction from 11% to 5%.
- Regulatory Duty: Proposed abolition, reducing the rate from 2% to 0%.
- Sales Tax: Proposed reduction from the current 18% to 10%.
- Withholding Tax: Proposed reduction from 5.5% to 2%.
Potential Revenue Increase Projected
The PTA estimates that the implementation of these rationalised tariffs, combined with the effective elimination of the identified loopholes and misuse, could lead to a substantial increase in legal tea imports. They project that formal imports could rise to 300 million kilograms annually from the current levels. As a result, the association forecasts a significant boost in tax revenues from the sector, potentially increasing to Rs 108.9 billion per year, compared to the approximately Rs 68 billion currently collected.
