FBR endorses viewpoint of Senate panel: Undue taxation relocating businesses to Dubai
ISLAMABAD: The Federal Board of Revenue (FBR) on Wednesday endorsed the viewpoint of Senate Standing Committee on Finance that high tax rates and strict taxation laws are prompting many businesses to relocate their business operations to Dubai.
Member Inland Revenue Operations, Hamid Attique Sarwar, acknowledged this development while briefing the Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla.
Members of the committee expressed serious concerns over this growing trend, warning that excessive taxation is driving businesses out of Pakistan.
Senator Farooq H Naek noted that property tax rates for non-filers currently range from five percent to 35 percent, and added that many individuals have failed to declare income in Pakistan while owning properties in the UAE — an indication of widespread tax evasion.
The committee emphasised the urgent need for a more business-friendly environment to prevent further capital flight and retain investment within the country.
Another major concern highlighted during the meeting was the increasing migration of Pakistani businesses to Dubai, allegedly driven by high tax rates and stringent regulations.
The committee was informed by the FBR officials that this trend has been officially acknowledged. Chairman Mandviwalla emphasised that instead of trying to get Dubai-based businesses liquidated, we must provide better facilities and incentives for businesses to stay and grow in Pakistan.
The FBR officials further briefed the committee that the property tax rates for non-filers now range between five percent and 35 percent, acknowledging that the current tax regime imposes a heavy burden.
'It is acknowledged that taxes are being implemented very heavily,' they admitted, while clarifying that the FBR is responsible only for collecting the taxes that are legislated. 'Whatever tax is levied will be collected,' officials stated.
Meanwhile, Members Operations FBR has disclosed that tax department has proposed to increase the maximum penalty for business-related tax evasion effective July 2025.
Currently, the fine stands at PKR 500,000, which Sarwar described as inadequate to serve as a deterrent.
He noted that lower penalties have weakened efforts to tackle tax fraud. The revised penalty rates will be presented in the Parliament for approval.
Sarwar also informed the committee that daily enforcement operations are underway in major cities, including Lahore, Karachi, and Islamabad, with 20 businesses being sealed daily for tax violations. Highlighting sector-specific efforts, he stated that FBR's crackdown in the sugar industry led to a 34.5 percent increase in tax revenue. Additionally, 95 percent of the sector is now integrated into a real-time monitoring system.
To further combat tax evasion, the FBR is planning to launch a national media campaign and is considering rewards for whistleblowers who report tax fraud.
Despite a proposal by Senator Faisal Vawda, the FBR officials maintained that Pakistan, currently under IMF loan programmes, cannot offer such schemes due to the need for fiscal discipline.
Addressing concerns about export refunds, the FBR assured the committee that refund payments are being processed without delay for five key export sectors: textiles, leather, surgical instruments, and export-related goods. Refunds are now processed within 72 hours, although some practical challenges prevent daily issuance.
The remaining export sectors, which were previously handled manually, have now been integrated into the central refund system. The FBR committed to releasing refunds for all sectors by May 23, although issues remain particularly in the food export segment.
Additionally, he proposed phasing out local refunds, stating that, globally, tax refunds are typically linked only to exports.
A key agenda item was the delay in the export and other sales tax refunds. Chairman Committee Saleem Mandviwalla expressed deep concern, stating, 'Many complaints on non-refund of sales tax have been received. Refunds are to be made within 72 hours; however, months have now passed in many cases.'
He further added either stop the policy or manage it properly—and identify the problem.
FBR officials informed the committee that all verified outstanding sales tax refunds in five major export-oriented sectors—textiles, leather, sports goods, carpets, and surgical goods — have been disbursed through the FASTER (Fully Automated Sales Tax e-Refund) system. They reported no current pendency of valid claims under the FASTER stream, with refunds being issued on a regular monthly basis.
According to the FBR, from July to April of the current fiscal year (2024–2025), a total of Rs 317.41 billion was disbursed against 33,204 Refund Payment Orders (RPOs) via the FASTER system.
Despite the FBR's claims, Senator Mandviwalla raised alarm over the food export sector, which contributes $4.8 billion in exports, noting that its sales tax refunds have not yet been released.
He urged the FBR to restructure refund disbursements based on a sectoral priority framework. FBR officials responded that refunds for the food export sector are expected to be released by Friday. They added that all '72 export sectors' under the FBR's jurisdiction are being considered in the refund process.
The chairman also directed the FBR to submit a comprehensive report detailing all outstanding refunds, including timelines, affected sectors, and the reasons for delay. Due to the absence of several members, and the federal minister for finance, the remaining agenda items were deferred to the next scheduled meeting.
Copyright Business Recorder, 2025
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