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Business Recorder
21-06-2025
- Business
- Business Recorder
E-Commerce sector urges govt to revise proposed tax steps
KARACHI: Pakistan's E-Commerce ecosystem has urged the federal government to revise proposed tax and compliance measures announced in Finance Bill 2025-26 and initiate a structured dialogue with stakeholders to co-create practical, growth-friendly tax policies Addressing a press conference here on Friday at Karachi Press Club (KPC), representatives of the Chainstore Association of Pakistan (CAP) and the Pakistan E-Commerce Association (PEA), along with other stakeholders including freelancers, marketplaces, courier services, payment providers, and digital platforms, have urged the government to adopt practical revisions to the proposed tax and compliance measures in the Finance Bill 2025-26. On the occasion, representatives including Muhammad Zeeshan, Shoaib Bhatti, Joint Secretary CAP Bushra, Atta Bin Azad, Mahwish from Payfast, Shoaib Ahmed and others were also present. They informed that Pakistan's e-commerce sector has grown over 35 percent annually in the past five years and currently, over 100,000 micro and small online sellers are active, supporting incomes for more than a million people nationwide. The total market size is estimated at Rs 2.2 trillion or $7.7 billion with some 2 percent share in the national GDP. They said that all stakeholders is supporting fair taxation and documentation, but the proposed measures risk severely disrupting both established and small businesses by putting an extreme compliance burden all at once. 'Their design and immediate implementation will stifle digital entrepreneurship, especially among youth and women,' they added. The coalition appreciates the proposed 5 percent digital presence levy on offshore platforms like Temu and supports improved data reporting requirements of the sector. However, the gains should not be undermined by excessive and impractical tax compliance obligations. They said that Finance Bill introduces multiple taxes and complex procedures across all related businesses, with no stakeholder consultation or phased rollout. Industry leaders warn that this top-down approach mirrors the unsuccessful 'Tajir Dost' scheme, which failed due to impractical design and lack of consultation. 'Blanket 2 percent sales tax withholding, mandatory sales tax registration for all online merchants, complex income tax withholding at six different rates, penalties of up to Rs 500,000 per case on platforms, couriers, and sellers and enforcement from 1st July with no transition period are key concern,' highlighted the representatives. They recommended 2 percent sales tax withholding to non-ATL (unregistered) sellers and income tax registration for small/ home-based sellers instead of complicated sales tax registration and monthly filings. Industry leaders urged the Prime Minister, Finance Minister, Commerce Minister, and Federal Board of Revenue (FBR) to pause enforcements and initiate a structured dialogue with stakeholders to co-create practical, growth-friendly tax policies. Copyright Business Recorder, 2025
Business Recorder
19-06-2025
- Business
- Business Recorder
Retail sector: CAP voices concerns over lack of ‘meaningful' tax reforms
LAHORE: The Chainstore Association of Pakistan (CAP) has raised significant concerns over the lack of meaningful tax reforms for the retail sector in the proposed Finance Bill 2025–26. The CAP has also warned that targeting domestic e-commerce could inadvertently harm the formal retail sector and jeopardize the growth of Pakistan's digital economy if not revised. The CAP acknowledged the government's efforts to broaden the tax base and formalize the economy. However, the association argues that inconsistent and short-sighted policies have placed disproportionate burdens on tax-compliant retailers integrated with the Federal Board of Revenue's Point of Sale (FBR-POS) system. The absence of a clear, long-term taxation roadmap, developed in consultation with stakeholders, has further deepened uncertainty within the sector. 'This year, the retail ecosystem anticipated a strategic, long-term approach in the Finance Bill,' said CAP Chairman Asfandyar Farrukh. 'Instead, we see a continuation of past practices, with our proposals to foster formal retail growth and encourage broader documentation largely overlooked.' Organized retail currently accounts for only 10% of Pakistan's retail and wholesale trade, significantly lower than the 15–20% share observed in comparable economies. Informal competition, increasing compliance burdens, and uneven enforcement continue to hinder growth, investment, and job creation in the formal retail sector. CAP Patron-in-Chief Tariq Mehboob highlighted the detrimental impact of last year's decision to eliminate the GST concession for customers of tax-compliant retailers, which has further tilted the competitive landscape in favor of informal players. 'Schemes like Tajir Dost failed due to inadequate planning and lack of stakeholder engagement,' Mehboob stated. 'There is still an opportunity to revise the Finance Bill before its finalization. Without prompt action, we risk losing another year without meaningful reform.' To encourage digital payments and economic documentation, the CAP has proposed reduced GST rates for consumers who transact digitally with retailers of any size. These rates, coupled with simplified compliance measures and built on the success of provincial incentives, would lower costs, promote formalization, and reduce reliance on cash transactions. Additionally, the CAP has recommended a fixed quarterly advance income tax regime for small retailers, payable through branchless banking and adjustable against annual filings. The association also advocates for a stable, three-to-five-year tax framework, complemented by incentives such as cashback programmes and service benefits at NADRA and passport offices, to build trust and encourage small and medium-sized enterprises (SMEs) to register. Pakistan's e-commerce sector has experienced remarkable growth, expanding by over 35% annually and empowering more than 100,000 micro and small sellers while generating jobs in technology and logistics. According to the State Bank of Pakistan, the sector facilitated over PKR 538 billion in digital payments in 2024. The CAP supports positive measures in the Finance Bill, such as the 5% digital presence levy on imported goods sold through foreign platforms like Temu and the introduction of e-commerce transaction reporting to enhance documentation. However, the CAP has expressed concern over several proposed tax compliance measures that could undermine these gains. Key concerns include blanket sales tax withholding on already documented businesses without input adjustment, mandatory sales tax registration for micro-sellers—particularly impacting youth and women entrepreneurs—and complex, multi-rate income tax withholding for platforms, payment providers, and courier services. These policies risk creating operational bottlenecks, complicating payment recovery, and increasing compliance costs across the e-commerce value chain. The CAP has called on the Ministry of Finance, the Federal Board of Revenue, and the Ministry of Commerce to suspend the implementation of these measures and engage in urgent consultations with stakeholders, including online sellers, platforms, and service providers. The association has put forward several recommendations to address these issues: limiting the 2% sales tax withholding to non-Active Taxpayer List (ATL) sellers, accepting income tax registration as sufficient for small, home-based online sellers, implementing a simplified single-rate income tax withholding of 0.25%, restructuring penalties to encourage rather than punish compliance, rationalizing provincial taxes on essential digital services, and providing a transition period of at least two to three months for e-commerce businesses to adapt. Copyright Business Recorder, 2025
Express Tribune
24-05-2025
- Business
- Express Tribune
After Tajir Dost flop, 1% levy proposed
Listen to article After the spectacular failure of the Tajir Dost scheme, which fetched a meagre Rs3 million against Rs437 billion paid by the salaried class so far, a tax advisory firm has recommended imposing a 1% income tax on all traders to ensure decent revenue collection. Tola Associates has also proposed limiting cash transactions to only Rs10,000 to discourage the informal economy, which has enabled traders to remain largely outside the tax net. These proposals were submitted this week to Deputy Prime Minister Ishaq Dar and Finance Minister Muhammad Aurangzeb. The firm also recommended that the government avoid further currency devaluation in the next fiscal year, challenging official projections that estimate the rupee falling to Rs290 to a dollar by June next year. The advisory firm has proposed that the government abolish the Tajir Dost scheme. Launched in June last year with the aim of collecting at least Rs50 billion, the International Monetary Fund (IMF)'s staff-level report disclosed this month that the scheme generated only Rs4 million. In contrast, the salaried class paid Rs437 billion in taxes during the first 10 months of this fiscal year, Rs150 billion higher than the same period last year. The firm recommended a 1% minimum income tax on all retailers, in addition to taxes already collected from wholesalers and retailers. It proposed that the tax be collected based on revenues generated under withholding tax clauses 236G and 236H. However, it is unlikely that the government will accept this recommendation. To enhance transparency and curb tax evasion, Tola Associates urged the government to ban cash transactions beyond Rs5,000 to Rs10,000 at retail and food outlets, mandating electronic payments. However, the Federal Board of Revenue (FBR) lacks the enforcement capacity to ensure compliance or to prevent businesses from discouraging digital payments. In a key recommendation, the firm stated that the upcoming budget should discourage currency devaluation by reducing non-essential imports, boosting local manufacturing and energy independence, promoting domestic value addition, and generating employment. It noted that economic stability requires a stable currency, targeted inflation, and no further devaluation. "Based on our estimates for FY26, if the current account deficit stands at 0.5% of GDP, the exchange rate should ideally stabilise around Rs276," said the report presented to the finance minister. However, the report noted that with the average exchange rate hovering around Rs280 this year, a potential depreciation of Rs10 to Rs15 could occur in FY26, bringing the rate to Rs290295 per dollar. Such devaluation could push inflation up by an estimated 3%, it warned. The government has already finalised the next budget based on an exchange rate of Rs290 per dollar. The firm also advocated export-led growth by implementing policies such as rationalising interest rates for industries, maintaining a balanced tariff policy on raw materials, and developing export-oriented industrial clusters. It added that promoting import substitution and offering result-based subsidies in key sectors like textiles, pharmaceuticals, and engineering goods is crucial for long-term sustainability. According to the firm, the 2025-2026 budget presents a critical opportunity for course correction and to reset the direction of the economy. It pointed out that the current policy rate of 11% remains a major barrier to industrial borrowing and investment. It urged the government to further reduce the real interest rate to the lower single digits to stimulate industrial expansion, particularly for capital-intensive manufacturing. To revive idle capacity and encourage new investment, the government should introduce a zero-markup loan scheme for priority manufacturing sectors. These concessional loans would reduce financial barriers and support import substitution, job creation, and export competitiveness. Tola Associates also expressed doubt over the FBR's ability to meet the next fiscal year's tax collection target of Rs14.1 trillion. The firm estimated that tax collection might reach Rs13.5 trillionfalling short of the IMF's target. It added that based on current trends, the FBR is likely to collect Rs11.9 trillion this fiscal yearRs1 trillion short of its original target. However, if the outcome of the super tax cases is in the government's favour, the FBR could potentially achieve Rs12.1 trillion. The firm reiterated its recommendation to impose an advance tax on undistributed reserves of companies that have not issued dividends for the past three years. It proposed a tax rate of 7.5% for unlisted and 5% for listed companies. This tax could be adjusted against future dividend taxes. It has also proposed changing the definition of resident Pakistani for the taxation purposes. "Pakistan is recommended to modernize its residency criteria to reflect actual economic presence and intent". Under its suggested framework, an individual would be considered a resident if they spend 182 days or more in Pakistan in a financial year. Those staying between 120 and 181 days would be assessed based on citizenship and income. For instance, a Pakistani citizen under the Pakistan Citizenship Act, 1951, or someone holding a Pakistan Origin Card (POC) with income above a certain threshold and no tax liability elsewhere, should be treated as a Resident but Not Ordinarily Resident (RNOR). Individuals not meeting these conditions and spending less than 120 days in Pakistan should be classified as Non-Residents, regardless of income or nationality, the firm added.
Express Tribune
08-05-2025
- Business
- Express Tribune
Pakistan meets key IMF conditions
Listen to article The International Monetary Fund's $7 billion bailout package largely remained on track during the first nine months of this fiscal year, as the federal and provincial governments met three out of five major fiscal conditions, with the Federal Board of Revenue (FBR) remaining the only weak link. The FBR missed its two key conditions of collecting Rs9.17 trillion total revenues and Rs36.7 billion from retailers under the Tajir Dost scheme during July-March period of this fiscal year, showed the fiscal operations summary released by the Ministry of Finance on Wednesday. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. In spite of achieving critical revenue targets, the federal government's net revenues were still Rs394 billion less than its needs for just two heads; interest payments and defence spending, according to the Finance Ministry. The fiscal operations' summary showed that Pakistan met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs2.7 trillion, the federal government reported a surplus of Rs3.5 trillion, or 2.8% of gross domestic product (GDP). This higher surplus was primarily due to fully booking the annual central bank profit in the first quarter, with the entire estimated profit of Rs2.5 trillion already accounted for. The four provinces collectively generated a cash surplus of Rs1.028 trillion, exceeding the IMF target by 25 billion. The federating units also generated Rs685 billion in tax revenues, surpassing the IMF target by Rs79 billion. The Finance Ministry said that the provincial tax collection "strong performance was primarily driven by the governments of Sindh, Khyber Pakhtunkhwa (K-P), and Balochistan". It did not mention Punjab government in the statement. The ministry further stated that non-tax revenues of the provinces reached to Rs203 billion, surpassing the target of Rs160 billion by Rs43 billion. This achievement reflects the collective efforts of all provincial governments in enhancing non-tax revenue streams, it added. The federal government's tax revenue performance was below the mark. The FBR failed to collect any significant revenue under the Tajir Dost Scheme against the target of Rs36.7 billion for nine months. The traders' income tax contribution through withholding taxes too remained negligible compared to salaried class's Rs391 billion payments in nine months. Moreover, against a nine-month revenue target of over Rs9.2 trillion, the FBR pooled Rs8.5 trillion, falling short of the goal by Rs715 billion. Thanks to the central bank and millions of people paying petroleum levy, the non-tax revenues amounted to over Rs4 trillion, exceeding the target by Rs71 billion. In just nine months, the petroleum levy collection amounted to Rs834 billion compared to Rs720 billion in the last fiscal year. Provincial governments enjoy significant fiscal flexibility due to increased revenues under the National Finance Commission (NFC) award. During the July-March period, the four provincial governments spent approximately Rs5.3 trillion, with development spending reaching Rs1.2 trillion. Their total revenues stood at Rs6.1 trillion, of which Rs5.1 trillion came from their shares in the federal taxes. A breakdown of provincial performance shows that Punjab, with total revenue of Rs2.9 trillion, spent Rs2.4 trillion, generating a surplus of Rs441 billion. However, the province recorded a statistical discrepancy of Rs117 billion, mainly due to below-the-line expenditures to retire wheat debt. Sindh booked a cash surplus of Rs395 billion after spending Rs1.5 trillion well below its total revenues. The province also reported a Rs10 billion statistical discrepancy. Khyber-Pakhtunkhwa (K-P) recorded a budget surplus of Rs111 billion, with Rs1.03 trillion in income and Rs920 billion in expenditures. K-P also had a statistical discrepancy of Rs13 billion. Balochistan generated a surplus of Rs105 billion, meaning the province has more revenue than its needs. The federal government last month increased the petroleum levy rate by Rs8 per litre in the name of funding Balochistan roads. The Finance Ministry said that provincial development overspending was primarily observed in Punjab and Balochistan, while Sindh and K-P remained within their development expenditure targets. Pakistan has agreed to approximately 40 conditions under the $7 billion IMF deal. As part of the programme, the four provincial governments must generate a total cash surplus of Rs1.217 trillion in the current fiscal year. On the expenditure side, the federal government spent a total of Rs11.5 trillion during the first nine months, with current expenditures reaching Rs10.7 trillion. This represented an Rs1.9 trillion or 19% increase in total expenditures compared to the same period last year, primarily due to rising interest payments. The federal government paid Rs6.4 trillion in interest costs, an increase of Rs921 billion from the previous year. Defence spending amounted to Rs1.42 trillion, higher by 16.5%. After distributing the provincial share, the federal government's net income stood at Rs7.5 trillion, which was Rs394 billion less than the combined spending on interest and defence. The Finance Ministry said that its primary current expenditures remained well within the targeted ceilings, with actual spending recorded at Rs4.3 trillion against a target of Rs5.2 trillion. The primary reason for this was lower releases of subsidies, which stood at only 49% of the allocated target. The ministry admitted that the development expenditure of Rs309 billion also remained under the spending target of Rs658 billion.
