The visit forms part of the government’s outreach to bring key stakeholders on board as it undertakes reforms aimed at separating tax policy from revenue administration and building a more growth-oriented tax framework.

During the meeting at PBC, Dr Memon outlined the mandate and working approach of the Tax Policy Office and emphasised the importance of structured consultation with industry bodies. The discussion focused on understanding private sector challenges, identifying distortions in the existing tax regime, and shaping tax policies that support investment, competitiveness, and formalisation of the economy.The PBC was among the first organisations to recommend and support the separation of tax policy from revenue administration. The Council has consistently maintained that tax policy should be long-term, predictable, and consistent to facilitate investment, support industry and exports, and contribute to sustainable economic growth. It has further emphasised that an effective tax framework must ensure a level playing field for the documented economy and avoid penalising compliant businesses.

Welcoming the engagement, Dr Zeelaf Munir, Chairperson, PBC, said that the creation of the TPO is a positive institutional step toward meaningful reform.

“We welcome Dr Najeeb Ahmed Memon’s visit and value the consultative approach being adopted by the Tax Policy Office. Pakistan’s economic future depends on resilience, reform, and responsible partnership. Documentation of the economy is necessary, and tax reform is essential for sustained growth,” she added.

She said that the separation of tax policy from administration can help create a more predictable, evidence-based, and growth-focused framework. At PBC, we bring data, solutions, and a partnership approach to support the government in designing workable policies that encourage investment and broaden the tax base without penalising compliant businesses.

She added that effective tax reform requires continuous dialogue with industry to ensure that policies are grounded in economic realities and aligned with Pakistan’s long-term growth objectives.

Dr Najeeb Ahmed Memon said, “The Government of Pakistan firmly believes that engagement with industry stakeholders is pivitol to building an effective and credible tax policy framework that support country’s economic prosperity. These consultations are aimed at understanding sectoral realities, identifying structural challenges, and ensuring that tax policy supports growth, investment and documentation of the economy. The insights shared by the Pakistan Business Council and its members will be valuable in shaping pragmatic and sustainable policy outcomes.”

The PBC reiterated its commitment to constructive engagement with the government and its institutions, noting that sustainable reform can only be achieved through coordination between policymakers, administrators, and the industry. The Council emphasised that a transparent, predictable, and equitable tax system remains central to improving Pakistan’s investment climate and supporting long-term economic growth.

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Welcoming the delegation, the Finance Minister briefed the PBC leadership on the current state of the economy, noting that macroeconomic indicators are moving in the right direction. He underlined that the government’s reform agenda—including state-owned enterprise reforms, the privatization programme, and efforts to right-size the public sector—is progressing well, laying the foundation for long-term stability.

Sharing recent developments, Senator Aurangzeb informed the delegation about the tariff negotiations with the United States, which present significant opportunities for Pakistani exporters due to emerging regional competitive advantages.

US cuts Pakistan tariff to 19% from 29% after trade deal

He encouraged PBC and similar representative bodies to take the lead in initiating targeted business-to-business engagements, for enhancing bilateral trade and investment.

The Minister emphasized the importance of economic stability, highlighting the exchange rate and policy rate stability and the expectations of these trends to continue to ensure long-term stability. He reaffirmed the government’s commitment to maintaining macroeconomic stability while creating an enabling environment for business and investment.

He added that the government fully recognises the importance of upgrading port, road, and rail infrastructure to further support domestic commerce and expand external trade opportunities.

The Minister also highlighted the outcomes of the Prime Minister’s recent visit to China, which included high-level strategic dialogues, robust business-to-business interactions, the formation of specialized working groups, and an unprecedented level of private sector representation. He noted that these engagements have already resulted in substantial traction and the signing of multiple MoUs, reflecting the government’s strong commitment to advancing bilateral economic ties.

Senator Aurangzeb further shared the government’s decision to relocate the Tax Policy Office from the Federal Board of Revenue (FBR) to the Finance Division, ensuring that all tax policy matters are aligned with broader economic policymaking. He also touched upon the ongoing flood situation, outlining the government’s efforts in rescue and relief, infrastructure rehabilitation, and need-based assessments while drawing on lessons learned from the 2020 floods.

On the inflation front, the Minister expressed confidence that price pressures will remain under control, supported by reduced oil prices that are keeping imported inflation in check. He noted that the government is closely monitoring developments and that the Steering Committee on Inflation, constituted by the Prime Minister, has already held its first meeting under his chairmanship, with the second meeting scheduled later this week.

The PBC delegation reciprocated the Finance Minister’s sentiments, appreciating the government’s economic direction and policy measures. They assured full support to the government in policy research and formulation and reaffirmed their commitment to continued dialogue and constructive consultation.

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Member Inland Revenue Operations Dr Hamid Ateeq Sarwar gave a presentation on the transformation roadmap, approved by the Prime Minister in October 2024, which focuses on three pillars – people, technology and processes.

According to the FBR, the reforms include the induction of around 1,600 auditors to expand audit capacity, training of new officers at reputable universities, and appointments based on integrity under a revamped Reward and Rating System linked to incentive packages.

Highlighting the role of technology, the chairman said digital production monitoring has been rolled out in key sectors, including sugar, cement, fertiliser, beverages, tobacco, poultry, and textiles.

Data integration and digitalisation of processes are also underway to track economic activity, detect tax evasion, and apply AI-driven risk parameters for audit selection.

The business community was informed that the tax-to-GDP ratio improved to 10.24% in FY25 from 8.8% in FY24.
The “Faceless Customs Appraisement” initiative, still in its pilot phase, has raised revenue per GD by 17.3% and reduced dwell time and demurrages at ports.

Enforcement measures have also boosted collections, with revenue generated from enforcement rising eightfold compared to last year.
On taxpayer facilitation, the FBR chief said a dedicated Facilitation Division has been set up at LTO Karachi, where senior officers will personally address taxpayers’ issues.

He also proposed a joint committee of FBR, PBC and OICCI to address valuation rulings and related matters.
Business representatives welcomed the pace of reforms, noting that technology-driven initiatives would help broaden the tax base and ease the burden on compliant taxpayers.

They also stressed the need for continued engagement between FBR and stakeholders.

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Speaking to a delegation from the Pakistan Business Council (PBC) on Wednesday, Aurangzeb said the government is “closely monitoring” price developments, with the Prime Minister’s Steering Committee on Inflation holding regular meetings. He expressed confidence that reduced imported inflation, supported by lower fuel costs, will keep price growth under control despite flood-related disruptions.

Aurangzeb also cited progress on reforms, including state-owned enterprise restructuring, privatisation plans and public sector right-sizing, as foundations for long-term stability. He highlighted stability in the exchange rate and policy rate, saying these trends are expected to continue.

On trade, the minister pointed to tariff talks with the US and the outcomes of the prime minister’s recent visit to China, which included new business-to-business engagements and multiple agreements aimed at deepening bilateral economic ties.

He added that moving the Tax Policy Office from the Federal Board of Revenue to the Finance Division would align tax policymaking more closely with economic strategy.PBC representatives, led by CEO Javed Kureishi and Chairperson Dr Zeelaf Munir, welcomed the government’s economic direction and pledged support in policy research and consultation.

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The announcement followed a meeting in Karachi between SECP Chairperson Akif Saeed and PBC representatives, where both sides reviewed recent reform initiatives and outlined future priorities.

Highlighting progress, the SECP pointed to a record-breaking 35,000 company registrations in 2024–25, attributing the growth to digitization measures such as online company incorporation and reduced compliance requirements. The regulator also showcased key innovations including the Financial Institutions Portal, the Electronic Mortgage Register, and the Ultimate Beneficial Ownership (UBO) registry, all designed to enhance transparency and efficiency.

SECP officials told the businessmen that reforms in capital market have paved the way for the listing of government debt securities on the Pakistan Stock Exchange (PSX), a more efficient IPO regime, and new frameworks enabling online-only, Shariah-compliant, and agri-commodity futures brokers. Upcoming initiatives, such as digital non-banking financial companies (NBFCs), mutual funds, and a Digital Distribution Platform, are expected to expand access to finance for businesses and investors alike.

Chairperson Saeed lauded PBC’s role in supporting sustainability and gender-inclusive reforms, particularly through initiatives like the ESG Sustain Portal and the Family-Friendly Awards introduced under the Prime Minister’s directive. He stressed the importance of wider adoption of ESG disclosure guidelines and strengthening capacity-building programs for stakeholders.

PBC Chief Executive Officer Javed Kureishi praised the SECP’s proactive measures to improve ease of doing business, noting that its consultative approach had strengthened confidence among the corporate community. PBC members also welcomed the regulator’s engagement on the proposed CSR Bill, insisting that corporate social responsibility should remain voluntary, aligned with ESG principles, and backed by greater transparency in existing mechanisms.

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During a wide-ranging discussion on the economy during a visit to the Pakistan Business Council (PBC) on Monday, the finance minister appreciated the sacrifices that the formal sector had to make in the front-loaded tax measures under the IMF programme and assured them as and when the fiscal space permits, this burden would be eased.

On import substitution, the minister lauded the progress made by the fast-moving consumer goods (FMCG) sector on indigenising inputs. However, he opposed protection without a sunset clause and favoured supporting those that achieved a certain percentage of export sales.

On taxation, the unlevel playing field versus the informal sector was highlighted by PBC members. The federal minister requested support from the formal sector to identify such evaders. He also shared the progress on transforming the Federal Board of Revenue (FBR) and infusing it with technology to broaden the tax base.

PBC chief executive Ehsan Malik told Dawn, “The finance minister wants to start the budgetary process in February/March instead of May/June and also wants to separate fiscal policy-making from the collection of tax as PBC has been recommending.”

The PBC members proposed recommendations on promoting exports, especially non-traditional goods, by encouraging the unleashing of the significant under-utilised capacity.

On textiles, PBC urged the government to negotiate lower tariffs on exporting apparel made from US cotton to the US, of which Pakistan is now the largest customer. A review of the EFS to allow domestic industry to supply exporters without GST was recommended, as was the reduction in the 2pc WHT on proceeds on exports of low-margin items.

Published in Dawn

During his visit to PBC in Karachi, the Finance Minister appreciated the sacrifices that the formal sector had to make in the front loaded tax measures under the program and assured that, as and when the fiscal space permits, this burden would be eased.

During a wide ranging discussion on the economy during the Finance Minister’s visit to the PBC, Chairman PBC Shabbir Dewan appreciated the significant progress the country has made over the past nine months in achieving economic stability.

Sales tax laws on distribution: PBC approaches NTC for resolution of federation-provinces dispute

This was echoed by PBC members who between them pay a third of direct taxes, generate 40 percent of exports and employ millions in their extended value chains.

The minister, who was accompanied by Khurram Shehzad, Advisor to the Finance Minister, lauded the quality of PBC’s research and its objective advocacy, especially on taxation and through its Make-in-Pakistan theme. He specially commended PBC’s report that differentiated between good FDI and bad FDI.

Members offered recommendations on promoting exports, especially of non-traditional goods by encouraging the unleashing the significant under utilised capacity.

On Textiles, PBC urged the government to negotiate lower tariffs on export of apparel to the US that is made from US cotton of which Pakistan is now the largest customer. Review of the Export Facilitation Scheme to allow domestic industry to supply exporters without levy of sales tax was recommended as was the reduction in the 2.0 percent withholding tax on export receipts on exports of low margin items.

On import substitution, the minister lauded the progress made by the FMCG sector on indigenizing inputs. However he was opposed to protection without a sunset clause and favoured supporting those that achieved a certain percentage of export sales.

On taxation, the unlevel playing field versus the informal sector was highlighted by members and the minister requested support from the formal sector to identify such evaders. He also shared the progress on transforming the FBR and infusing it with technology to broaden the tax base.

In closing the discussion, the minister requested the PBC CEO Ehsan Malik to summarize the discussion and share the members’ proposals.

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The Chief Minister stated that in order to promote industrial growth, and employment, and strengthen the economy, he was working towards bolstering the existing trade and industry and attracting more investment by providing them with all necessary facilities. He emphasized that this was the key to strengthening the economy and creating job opportunities.

The Pakistan Business Council (PBC) proposed to the Chief Minister to reduce the infrastructure cess from 1.8 per cent to 1.2 per cent. The chief minister assured the delegation that he would review the request and directed the Secretary of Finance to propose his suggestion.

During the meeting, the delegation raised concerns about the increasing power tariff and its adverse impact on the industrial sector. They also suggested the announcement of a package for the industrial sector. In response, the CM mentioned the positive indicators in the economy and the recent reduction in interest rates.

Shah proposed that the federal government offer special power rates for industries that hold special night shifts, which would create more jobs and boost production.

The CM and the PBC office-bearers agreed to hold another meeting to further discuss their issues and devise a plan to address them.

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According to a communication of the PBC to Finance Minister and Chairman NTC Muhammad Aurangzeb on Thursday, the said issue concerns overlapping of sales tax on economic activity undertaken by distributors.

Thus, it falls under the terms of reference (TORs) of the NTC, and requires collaboration among federal and provincial tax authorities to develop consensus based guidelines for taxpayers concerning the application of sales tax laws on distribution and subsequent supply arrangements.

FBR, PRAs at loggerheads over harmonization of tax collection

The PBC has also sought clarifications on Sindh Sales Tax on Supply Chain Management or Distribution Services from the Federal Board of Revenue (FBR) and Sindh Revenue Board (SRB).

The PBC has informed the FBR/SRB that the issue is related to the payment of Sindh Sales Tax on Supply Chain Management or Distribution Services as outlined in Tariff heading 9845.0000 of the Sindh Sales Tax on Services Act 2011.

The PBC acknowledged and appreciated the SRB’s attention to the potential ramifications of recent judgments on distribution arrangements across the nation. It is evident that these implications could significantly affect tax revenues at both the federal and provincial levels, highlighting the necessity for clear guidelines and clarifications to prevent double taxation and maintain a favorable business environment.

The PBC advocated strongly for the issuance of comprehensive guidelines by the SRB & the FBR to address the central question regarding:

(i); The segregation of the price of goods received by the manufacturer, in accordance with Federal Board of Revenue provisions.

(ii); The imposition of sales tax on distributor’s margins or income.

(iii); The implementation of guidelines for tax adjustments at different levels (i.e., Federal and Provincial) to ensure the harmonization of input and output tax adjustments between manufacturers and distributors (viz-a-viz between Federation and Provinces).

(iv); The guidelines should differentiate between third schedule and non-third schedule items, considering that manufacturers are subject to federal laws under the Sales of Goods Act, while distributors may fall under provincial services tax regulations.

Additionally, the guidelines should take into account goods listed in the Third Schedule of the Federal Sales Tax Act, 1990 (‘FST’), wherein manufacturers are already subject to sales tax based on retail value,which encompasses the distributor’s margin.

Levying provincial sales tax on the supply of these goodswould lead to double taxation. Moreover, consumers of items currently under zero-rating and exempt regimes of the FST, particularly in the dairy and pharmaceutical sectors, would be adversely affected by any supplementary taxes. It is imperative to mitigate unintended consequences on these critical sectors.

The breakdown of transactions into sub-transactions introduces complexity for tax purposes, and we seek clarification on the rationale behind such practices.

Furthermore, the PBC requested clarification on the stance of Federal and Provincial tax regulators regarding scenarios where a sale is considered not to have occurred upon the delivery of goods. Such assertions could have adverse implications for accounting practices and the existing VAT system.

The PBC stressed the importance of aligning arrangements with the predominant nature of economic transactions.

Considering the potential implications, the PBC proposed collaboration between Federal and Provincial tax regulators to develop consensus-based guidelines for taxpayers concerning the application of sales tax laws on distribution and subsequent supply arrangements. It is crucial to engage with other provinces, including Islamabad, to ensure consistency in tax regulations across regions.

In light of these considerations, the PBC believed that formulating guidelines encompassing methodologies for post-sale services and place of supply rules would facilitate the identification and taxation of relevant services in the future.

The PBC added that further discussions and collaborative efforts aimed at tackling these challenges and enhancing our tax regulatory framework.

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The country needs investment for jobs, tax revenue, exports, and reduced reliance on imports, especially food. New and existing investors should factor VUCA more into their expectations.
Businesses criticise governments for a disproportionate burden of taxes that penalise scale and investment, such as super tax. They fail to understand that the IMF does not buy into the government’s hopes of broadening the tax base. Therefore, its short-term programme is front-loaded with targets that can be met by taxing the taxed.

The country suffers from unreliable, environmentally unsustainable, import-dependent, and costly energy. The IMF is aware that fuel indigenisation, transmission, and distribution reforms could address Pakistan’s issues, but as these would take three-plus years to complete, its tariff prescription meets its short-term aim of controlling the fiscal deficit. Hence, a significant reduction in energy tariffs is unlikely, and manufacturing will remain uncompetitive.

It is crucial to review investment choices.

There are also no quick solutions to other major growth blockers — low productivity due to under-developed human capital and poorly negotiated trade agreements, with friendly GCC and the UAE knocking on the door for preferential access to our market. The country’s regulatory environment, too, results in high costs and slow decision-making, but the colonial-era bureaucracy is too well-entrenched to dislodge.

Given the current situation and the objective of an IMF programme, focused primarily on avoiding default, it is crucial to review investment choices afresh.

The FMCG sector in Pakistan has been an attractive opportunity for foreign investors. However, as this sector, which is a significant part of FDI, has a negative impact on the external account, it is important to consider the longer-term impact on the external account when evaluating FDI.

In the past two decades, many local groups have invested in projects carrying a sovereign guarantee or some protection, subsidy, or other state patronage. The recent spotlight on IPPs and the potential challenge to their contract terms does not augur well for further private sector investment, especially in power transmission and distribution, which Pakistan urgently needs.

There’s also growing realisation that import substitution through long-term protection to sectors in which Pakistan has no comparative advantage, is likely to build an externally competitive position, which undermines consumer value. Herein lies the dilemma. With high energy costs, low productivity, infrastructural constraints, and regulatory and fiscal burdens, even locally produced basic goods that benefit from favourable tariffs on ingredients versus finished goods would struggle to compete with imported goods if this protection were withdrawn.

Dispelling a common myth, it must be noted that redirecting investment from protected industries to export-oriented ones is not straightforward. Without a comprehensive industrial policy identifying Pakistan’s comparative advantage, piecemeal tariff changes are unlikely to yield positive results, except where such protection raises the cost of inputs to the SMEs in the export sector.

It would be better to wean manufacturing off protection through limited time and performance-based conditions, of which export competitiveness should be one. Also, the policy should factor in the reducing importance of cheap but low-productivity labour and the high cost of energy.

The takeaway for the private sector is that relying on guarantees and subsidies from a sovereign str-uggling to remain solvent is not sound strategy. Over the years, banks and industry have become risk-averse and inward-focused, reliant on state crutches and patronage often disguised as a national need, such as funding the fiscal deficit. In so doing, they have a misplaced hope of immunity from the state’s unpredictable policy framework.

Pakistan’s comparative advantage lies in its land and water, if optimally used to address food security, reduce reliance on imports, and generate export surplus. Fortunately, some large local groups are now turning to agriculture. Another hope is to deploy human capital for more productive use in the export of services, as manufacturing will remain beset with high energy costs. MNCs and local companies are training talent for software development, call centres, and back offices. Mining is another medium-term potential attracting investment. Finally, tourism’s unrealised promise is contingent on security conditions. Despite the VUCA times, there is hope, but it is not dependent on guaranteed terms or protection.

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The warning came amid a report by the Dubai Chamber of Commerce that 3,968 Pakistani companies registered in Dubai between January and June 2024 — making Pakistan the second-ranked country on the list. The figure was also 17 per cent higher than the 3,395 firms registered during the same period in 2023.

Last year, the Dubai Chamber of Commerce registered 8,036 new Pakistani businesses.

The surge in Dubai-based Pakistani businesses highlights a growing exodus from a country already grappling with severe unemployment and sluggish economic growth. As hundreds of thousands of skilled and unskilled workers have already left Pakistan, millions more are reportedly seeking opportunities abroad.

Says high-speed connectivity vital for domestic economy

“Many multinational companies (MNCs) are either planning to relocate their back offices from Pakistan or have already done so, as the reported imposition of a firewall causes widespread internet disruptions across the country,” the PBC said in a statement.

This migration reflects a deepening lack of confidence in the government’s economic policies. Key factors contributing to this trust deficit include the high cost of doing business, political uncertainties, soaring electricity costs, and deteriorating law and order.

“While we struggle with the costs of idle capacity in power generation leading to unemployment and loss of exports and tax revenue, we now have to contend with the threat of idle capacity in the emerging software sector due to poor execution of a firewall,” the PBC said.

The tech industry has already expressed serious concern over the recent internet slowdown, warning that these disruptions could cost Pakistan up to $300 million. The PBC asked the authorities concerned to go back and get the right firewall or learn to apply it without creating an unnecessary impact on employment and exports.

“IT and IT-enabled services, besides agriculture and tourism, offer a valuable opportunity to achieve the PM’s export target over the next three years. High-speed connectivity is also vital for the domestic economy,” the council said.

The Overseas Investors Chamber of Commerce and Industry (OICCI) also warned that frequent internet disruptions in Pakistan could derail the country’s economic progress.

The Pakistan Software Houses Association said in a statement that these disruptions are not mere inconveniences but a direct, tangible and aggressive assault on the industry’s viability, inflicting devastating financial losses estimated to reach $300m, which can increase exponentially.

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FPCCI Acting President Abdul Mohamin Khan, in a statement issued on Tuesday, said despite repeated and unrelenting expressions of its concerns and apprehensions — loud and clear — regarding IPPs’ capacity charges, the business community is still not being taken on board for the consultative process to resolve the issue as soon as possible despite being the primary stakeholder of the issue.

However, M. Abdul Aleem, Secretary General and Chief Executive Officer of Overseas Investors Chambers of Commerce and Industry (OICCI), told Dawn that “we always follow logical discussion on complicated and sensitive issues. Court action is not part of our strategy unless there is a blatant violation of our rights or commitment, policy or contract”.

Pakistan Business Council CEO Ehsan Malik advocates regionally competitive industrial power tariffs to promote employment, boost exports, and make manufacturing for the domestic market more affordable.

OICCI distances itself from litigation, advocates for talks

He called for the removal of cross-subsidies, reduction in reliance on expensive imported fuel, greater use of cheaper renewable energy through south/north transmission lines, removing line losses, and addressing theft and recovery issues of Discos.

He also proposed reducing tariffs to generate demand to use the spare generation capacity, converting coal plants to local coal, extending the loan tenor to the useful life of assets, and seeking the conversion of CPEC loans from commercial to G-to-G terms. In aggregate, these steps would amount to substantial savings in foreign exchange and reduced tariffs.

So far as capacity payments are concerned, Mr Ehsan said the government renegotiated the terms with local IPPs a few years ago, though it has yet to do so for the CPEC units. It is important to understand that 80pc of capacity payments are used to service the debt that the IPPs took when establishing their plants.

He said this debt is mainly in foreign currency. Hence the linkage of payments to the exchange rate since no forward cover was then, or is now, available. Any legal or other intervention that prevents the servicing of these loans by IPPs would amount to a sovereign default and trigger a wider chain reaction on Pakistan’s external and domestic debts.

It would also deter local and foreign investment, leading to many international arbitration cases. That would amount to another Reko Diq episode, which Pakistan can least afford.

However, the FPCCI acting president asked the government to conduct forensic audits of IPPs, abolish capacity charges forthwith and renegotiate power purchase agreements fairly and transparently.

He maintained that the country had paid approximately Rs2,000 billion in capacity charges to these IPPs in FY24, which would further steeply rise to Rs2,700-2,800bn in the current fiscal year.

He added that guarantees to IPPs indexed to the US dollar mean any depreciation of the Pakistani rupee increases returns for IPPs, adding a debilitating financial burden on the government and the public alike.

He said the apex chamber demanded a comprehensive review of IPP agreements, price re-evaluation within legal bounds and improved oversight to prevent over-invoicing. Examining the energy infrastructure for clauses related to misinformation and fraud is also required. The federal government must devise a strategy to deal with IPPs and ensure affordable electricity prices for the industry in the national interest, Mohamin proposed.

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Spearheaded by former caretaker trade minister and textile lobby leader Gohar Ejaz, who has dubbed the power purchase contracts with IPPs a “rip-off”, the narrative against the power producers has hit many a nerve. After all, there is not a single soul in the country who has not been affected by bloated electricity bills. The most affected are middle-class households living from paycheck to paycheck. So when someone like the former minister says on a daily basis that power consumers have been saddled with unaffordable electricity bills because of the power purchase contracts signed with IPPs and that these agreements must therefore be cancelled or amended, he is applauded by both TV show hosts and an inflation-stricken public. However, the ill-considered demand for cancelling legally binding contracts with the IPPs amounts to asking the sovereign to default on its international contractual obligations, a step that will frighten foreign investors away. The report that Mr Ejaz intends to approach the Supreme Court on the issue has revived memories of the Reko Diq case where an adverse verdict had resulted in Pakistan suffering a loss of $900m, an amount it will not be able to recover from the project for many years. Sovereign default is not the answer. There are other solutions, such as the government, which owns nearly half the generation capacity built from tax money, letting go of its profits, and controlling system and theft losses, which could work.

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The body said the government should provide relief by cutting back on public expenditure and broadening the tax net. The government should also share the progress on digitalising and restructuring the FBR.

The trust deficit between formal businesses and government is at its highest due to the lack of communication by the government in the lead-up to and following the budget announcement.

PBC Chief Executive Officer Ehsan Malik said the country’s economic managers should come to Karachi, listen to businesspersons and consider their concerns, including a level playing field with the informal sector.

He said the government must also acknowledge the role that the formal sector plays as unpaid tax collectors on behalf of an ineffective FBR.
Our weak negotiation position with the IMF may do little to shape the 24th programme in a more reform-centric and less front-loaded way, but it is worth trying. Otherwise, the result will not be different from the past, he said.

The FBR, in its current form, is incapable of broadening the tax base and its chairman admitted the fact on Friday in a meeting.
The IMF also realised that the only way to help balance the fiscal account is to put further burden on the already taxed sectors.
The global lender has recognised the inability of the government to walk the talk on cutting the government’s size and reigning in public expenditure, Mr Malik continued.

He said the IMF is also aware of this government’s inclination toward infrastructure projects, and surprisingly, it appears to tolerate that.
According to Mr Ehsan, it appeared that the IMF is primarily focused on the immediate challenge of dealing with Pakistan’s debt vulnerability.
He added that there are some good measures that the IMF has successfully imposed on the federal and provincial governments.
He identified the new tax on agriculture income as “the most important development”.

“What remains to be seen is whether [IMF] can prevail in revising the National Finance Award, as simply producing a provincial budget surplus is hardly a motivation for the provinces.”

The provinces need to take responsibility for the Benazir Income Support Programme (BISP), leakages in energy distribution, and a good share of the Public Sector Development Programme.

IMF also wants the government to resist new regulatory and tax-based incentives and phase out Special Economic Zones incentives, he added.

This would discourage investment in a country with a low investment-to-GDP ratio and now one of the highest tax rates in the world, he said.

Refraining from the expansion of generation capacity and guaranteed return projects is a welcoming condition, the PHC chief said, adding that IMF’s insistence on timely adjustment in energy tariffs detracts from fundamental reforms of the energy sector.

On a positive note, replacing cross-subsidies with targeted BISP support augurs well for an industry burdened with regionally uncompetitive energy costs, Mr Malik added.

Published in Dawn

In a letter addressed to the Member Inland Revenue – Operations of FBR, the PBC highlighted severe challenges faced by sales tax registered persons since the implementation of these amendments.The crux of the issue lies in the treatment of sales tax returns under the new provisions. According to SRO 350(I)/2024, sales tax returns filed by buyers of taxable goods are deemed provisional in the IRIS Portal until the respective seller files their return for the same tax period by the due date. If the seller fails to file a return or submits an invalid or incomplete one, the provisional return of the buyer is automatically finalized. This finalization leads to the deletion of input tax entries related to purchases from non-compliant suppliers from the buyer’s return.

“This automated process adversely affects compliant taxpayers,” stated the PBC. The sudden disallowance of input tax due to the non-compliance of suppliers places significant financial strain on buyers, impacting their working capital and operational capabilities. It forces them into a payable position, disrupting their financial planning and business operations.

Furthermore, the IRIS Portal’s technical limitations prevent adjustments in Annexure A and F of provisional returns after the end of the month. Unsubmitted purchase invoices are automatically removed from Annexure A, reducing the value of purchases and corresponding input tax adjustments in Annexure F. This anomaly causes the net value of purchases to turn negative in Annexure F, leading to submission errors when filing final returns.

“The inability to submit final returns due to technical issues exacerbates the difficulty of doing business in the current macroeconomic environment,” lamented the PBC. They emphasized that such constraints are unjust and contradict the principles of fair business practice and justice under the law.

Moreover, the PBC underscored that the ripple effect of non-compliance by one entity impacts the sales tax returns of all associated parties, disrupting the entire supply chain. This cascading effect further exacerbates the operational challenges faced by compliant taxpayers.
In light of these pressing issues, the PBC urged the Member FBR for immediate intervention to resolve these issues promptly. They emphasized that compliant taxpayers should not bear the brunt of non-compliance by others and called for corrective measures to align with the spirit of justice and equity in taxation.

The PBC’s letter reflects growing frustration within the business community over regulatory hurdles that hinder operational efficiency and financial stability. As stakeholders await a response from the FBR, the outcome of these deliberations will be crucial in determining the future ease of doing business in Pakistan.

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