Exporters face double tax blow

Express Tribune

23-05-2025

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A senior tax official said on Thursday that 18% sales tax will be imposed on imported raw materials being used in exportable goods, amid a bizarre contradiction in the International Monetary Fund (IMF)'s policy to 'compel' Pakistan to simultaneously charge minimum and standard income tax rates from exporters.
The Member Tax Policy of the Federal Board of Revenue (FBR), Dr Najeeb Memon, disclosed on Thursday that the IMF had asked the FBR to retain 1% minimum income tax on exporters while introducing the standard 29% income tax due to a lack of certainty about the revenues from the new measure.
Before the last budget, the exporters were subject to only 1% income tax under the final tax regime, which the government changed to the standard 29% rate.
The member policy made the disclosure in a meeting of the National Assembly Standing Committee on Finance that discussed the issue of charging double taxes from the exporters. Such double taxation was also contrary to international best practices.
The committee members and the Karachi Chamber of Commerce and Industry (KCCI) proposed that the FBR should withdraw the 1% minimum income tax after it had already started charging 29% income tax.
However, Memon disclosed that the minimum tax on the gross receipts of the exporters cannot be withdrawn because the IMF had asked to retain it for at least two to three years.
"It is highly unfair to simultaneously retain both the regimes of minimum and standard income tax," remarked Chairman of the Standing Committee, Syed Naveed Qamar of the PPP. He went on to say that the FBR did not want to work and was comfortable collecting taxes by sitting in their rooms.
There was no immediate independent verification of the FBR's claim about the IMF. There have been incidents in the past where the FBR used the name of the IMF to impose certain taxes for the sake of its own revenues.
Memon said that it was the IMF that asked, in order to remain certain, the government should retain both the minimum income tax and introduce the standard rate too. He explained that the minimum tax was not refundable and the exporter has to pay both levies.
Qamar also expressed displeasure about the absence of FBR Chairman, Rashid Langrial, from the committee meeting. Memon said that Langrial was in the IMF meeting. However, the Standing Committee chairman replied that he was coming from the IMF-PM luncheon meeting and the FBR chairman was not there.
Due to the absence of the FBR chairman, Qamar refused to take up the government's tax-related bill for approval. He deferred the discussion on the Income Tax Second Amendment Bill, which the government has proposed to restore 25% income tax credit for the teachers.
According to the proposed amendment, the tax payable by a full-time teacher or a researcher employed in a non-profit education or research institution duly recognised by the Higher Education Commission (HEC), a Board of Education or a university recognised by the HEC, including government research institutions, shall be reduced by an amount equal to 25% of tax payable on his income from salary.
However, this exemption will not be available to teachers of the medical profession who derive income from private medical practice or who receive a share of consideration received from patients.
The rebate has been proposed to be restored with effect from the first day of July 2022 and shall cease to have effect after tax year 2025.
The committee also discussed the issue of the imposition of 18% sales tax on local raw materials meant for use in exports. The tax had been imposed in the last budget.
There is a likelihood that imported raw material will also be taxed at the rate of 18% in the budget after the government imposed such tax on the local supplies for exportable goods, said the member tax policy.
His comments came after the members of the committee and the KCCI demanded withdrawal of the 18% sales tax that had been levied on the local supplies of exporters in the last budget.
MNA Arshad Abdullah Vohra said that the local manufacturers of raw materials were facing a big crisis after the government imposed the 18% tax in the last budget but did not impose such tax at the import stage.
Last time, the IMF might have overlooked it, but this time the 18% tax will be imposed on imports too, said Memon.