KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has presented its budget proposals for the fiscal year 2026–27.
It recommended reinstating the Final Tax Regime (FTR) for exporters as full and final liability, to reduce the compliance burden. However, the rate of final tax may be negotiated with stakeholders.
It said an option may be provided to individual exporters to choose between the Final Tax Regime and Normal Tax Regime as per their convenience.
About IT and IT-enabled exports, it said currently, IT exports are around USD 3.8 billion, with a potential to grow to USD 10 billion. Presently, export revenues from IT and IT-enabled services are taxed at a rate of 0.25 percent, a rate that is renewed annually. To ensure long-term stability in policy and promote ongoing growth in this sector, it is recommended that the 0.25 percent tax rate be maintained till 2035.
It said presently SME turnover threshold is Rs250 million, the same was inserted in definition of small company through Finance Act, 2007. Since then, the USD has appreciated against PKR by approximately 366 percent. It recommended increasing this threshold from Rs 250 million to at least Rs 500 million to adjust currency depreciation impact. Further, the threshold should be linked with CPI.
It said presently, the Income Tax Rate for manufacturers is 29 percent plus WWF 2 percent and WPPF 5 percent, totalling 36 percent which is too high and has compromised the business growth, modernisation, new investment and FDI. It recommended reducing the tax rate from 29 percent to 20 percent.
The Super Tax under Section 4B was introduced in 2015 to fund the rehabilitation of temporarily displaced persons. The Federal Constitutional Court has passed judgment on Super Tax under Section 4B in favour of FBR. FBR’s enforcement measures are draining the liquidity of businesses, additionally the department is charging default surcharge on outstanding amount.
The FPCCI recommended recovering Super Tax in reasonable instalments without default surcharge.
The Super Tax under Section 4C was introduced in Tax Year 2022, which was continued in subsequent years and its scope was further expanded, resulting in lower liquidity for businesses, discouraged investments, business expansion, and encouraged capital flight. It recommended that the Super Tax (4C) may be abolished completely, preferably from the manufacturing sector, and for other sectors it should be reduced considerably to enhance GDP growth.
The budget proposals said the salaried individuals are subject to income tax up to 35 percent along with a 9 percent surcharge. The resultant disposable income is not sufficient to cover education of children, health, and household expenses. It recommended reducing tax rate from 35 percent to 30 percent, and to reduce/ abolish 9 percent surcharge. It suggested enhancing non-tax slab from Rs 600000 to Rs 1200000. It also suggested allowing tax credits for expenditure on education, health to encourage quality education and filer culture.
The FPCCI said the taxpayers are currently required to file both quarterly and annual withholding statements. Since the data in the annual statement is the same as of the already submit quarterly returns, it is recommended to discontinue the annual Withholding Tax (WHT) statement. Further, PRAL may auto consolidate four quarter statements and share editable digital copy with taxpayers.
It said in cases where the withholding agent has deducted tax from the taxpayer but did not deposit it within the due date to the government, and the taxpayer is held responsible by the FBR. It recommended that the taxpayer may not face the consequences.
The high rates of withholding tax under Section 148 (Imports) and Section 153 (Supply of Goods, Rendering or Providing of Services and Execution of Contracts), 236G, and 236H are “Advance Tax” in nature which traps the working capital of businesses, resulting in liquidity crunches and later on creating refund claims, said the FPCCI, recommending to revisit the mechanism and rationalise WHT rates. Taxes withheld under aforesaid sections may not be treated as minimum tax.
The current threshold for applying withholding tax on the purchase of goods under Section 153 (1) (a) of the Ordinance is above Rs 75,000 in aggregate during the financial year. Similarly, WHT on purchase of services under Section 153 (1) (b) is Rs 30,000 in aggregate. Given the devaluation of rupee, the threshold needs to be revisited. It recommended increasing the limit from Rs 75,000 to Rs 250,000 for Goods and Rs 30,000 to Rs 150,000 for Services.
Copyright Business Recorder, 2026
