PM advises FBR to go slow on curbing cash economy
Prime Minister Shehbaz Sharif has directed officials to gradually implement the decision of treating half of cash expenses above Rs200,000 as part of income as the business community defers its strike, except for the Lahore Chamber that will press ahead with plans to close shops on Saturday.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) postponed the strike for one month after meeting the government's economic team at the Ministry of Finance on Tuesday. However, the Lahore Chamber of Commerce and Industry (LCCI), which was once considered close to the PML-N, announced that it would go on strike on July 19. LCCI President Mian Abuzar Shad said that his chamber would observe the strike due to rejection of its demand to defer the enforcement of the law for one month.
The business community wants immediate withdrawal of the Federal Board of Revenue's (FBR) authority to arrest people on allegations of fraud, powers to add back 50% of cash expenditure above Rs200,000 to the income and depute taxmen in factories. It also demanded that the FBR's discretion to determine input adjustments and the enforcement of electronic invoicing should be suspended. In a meeting held at the PM Office on Monday, Shehbaz Sharif asked tax authorities to adopt a go-slow policy instead of swiftly enforcing the recently approved tax law, according to the government sources.
They said that the PM was of the view that the FBR may gradually implement the condition of adding back the cash expenditure of over Rs200,000 to the income. The step has been taken in the budget to discourage the use of cash by traders and firms.
According to new Section 21S and Q of the Income Tax Ordinance, 50% of the expenditure claimed in respect of sale where the taxpayer received payment exceeding Rs200,000 otherwise than through a banking channel or digital means against a single invoice containing one or more than one transactions of supply of goods or provision of services will be treated as income.
Section 21(q) states whereby 10% of the claimed expenditure attributable to purchases made from persons who are not National Tax Number (NTN) holders shall be disallowed. However, the tax authorities were trying to find a mechanism to adopt a gradual approach as it would require amendment to the ordinance. One of the options was to issue an explanatory note but it would lack the binding legal force.
Pakistan's leading business chambers on Tuesday again asked Finance Minister Muhammad Aurangzeb to immediately suspend the laws that authorise the arrest of taxpayers and penalise the use of cash. The government claimed that it could not suspend the law until the International Monetary Fund (IMF) was taken into confidence. Interestingly, last week the government bypassed the IMF to exempt taxes on sugar import.
In a press note, the finance ministry said that an important meeting was held with representatives from the business community, chambers of commerce and traders' organisations. The meeting thoroughly discussed concerns over Section 37A and other related matters introduced under the Finance Act 2025.
Aurangzeb assured the business community of the government's full cooperation, emphasising that the objective was to prevent large-scale tax fraud and not to harass legitimate and honest businesses. It was decided in the meeting that a committee would be formed under the chairmanship of Special Assistant to Prime Minister on Industries and Production Haroon Akhtar Khan. Besides government officials, the committee will also comprise nominated representatives from the business community. The committee will hold detailed consultations over 30 days and present a mutually agreed solution to the PM.
After the meeting, FPCCI President Atif Ikram Sheikh announced the postponement of the strike for one month. However, he was immediately interrupted by the LCCI president, who said that Lahore would observe the strike because of the rejection of its demand.
The finance ministry first announced that the business community had postponed the strike but later it issued an amended version and deleted the sentence related to the strike.
Suhail Altaf, representing the Rawalpindi Division, said that the government had assured that it would not create hurdles in the way of business activities until the matter was resolved by the committee.
The FBR on Tuesday also issued new instructions to empower the district administration to seize cigarettes being sold without valid tax stamps.
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