Senate Committee Backs Business Proposal on Sales Tax Exemption

ISLAMABAD: The Senate Standing Committee on Finance and Revenue has given its support to a proposition from the business sector to discontinue the sales tax exemption in the formerly designated tribal areas after June 30, 2025.

The existing sales tax exemption for these regions is scheduled to end on June 30, 2025.

Committee Chairman Saleem Mandviwalla expressed concern that formal industries, including steel and ghee/cooking oil, are at a competitive disadvantage because of this exemption. He stated, “We are fully aware of this issue, have made a decision, and will issue a recommendation.”

The committee convened on Wednesday to begin pre-budget consultations for 2025-26 with various stakeholders, such as the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), Chambers, and Associations.

Key Issues Raised During the Meeting

Jawed Bilwani, President of the Karachi Chamber of Commerce and Industry (KCCI), drew attention to the special tax treatment in the ex-FATA region, noting that a significant portion of tea imports passes through this area due to considerably lower taxes. He also highlighted the problem of reduced duties and taxes on raw materials for the plastic industry, specifically polyethylene. He restated that manufacturers import larger quantities of raw materials due to these lower taxes, which they then sell at inflated prices.

He also voiced concerns about the delayed sales tax refunds, which take more than nine months, despite the Federal Board of Revenue (FBR)’s claims of processing refunds within 72 hours. He asserted that these delayed refunds and advance taxes have greatly increased the cost of doing business.

Mandviwalla noted that the FBR acknowledged the 72-hour refund policy for sales tax before the committee. The committee resolved to address this issue during the upcoming budget meetings.

Recommendations from Exporters

Exporters suggested reinstating the zero-rating on local supplies to registered exporters under the Export Facilitation Scheme (EFS) to alleviate liquidity pressures and ensure smooth operations. Additionally, they proposed implementing zero-GST on utilities (power and gas) for exporters registered in the EFS to promote exports by guaranteeing sufficient liquidity and seamless cash flow. This would boost exporter confidence, strengthen international business relationships, and unlock true business potential.

Tax Regime Concerns

The business community pointed out that the Finance Act 2024 shifted exporters from the Final Tax Regime (FTR) to the Income Tax Regime (NTR), which has increased compliance burdens. They proposed restoring the FTR for exporters to simplify FBR audits, considering its limited capacity. This would enhance the ease of conducting business and support growth in documented sectors.

The Lahore and Gujranwala Chambers of Commerce and Industry raised concerns about the advance tax on exports. They reported that the State Bank charges a one percent tax, plus an additional one percent on remittances, and suggested rationalizing this tax.

Furthermore, the Sialkot Chamber of Commerce and Industry emphasized the expulsion of tribunals for cases where sales tax exceeds Rs2 million and income tax exceeds Rs1 million, expressing worry over the lack of appropriate appellate forums for small taxpayers.

The Committee assured the chamber that it would address the matter in the upcoming budget. The Sialkot Chamber also stressed the importance of supporting the growing number of young entrepreneurs, with approximately 600 to 700 new registrations annually, highlighting the need for supportive policies for this emerging business segment.

The Rawalpindi Chamber of Commerce and Industry proposed a 15 percent GST in the upcoming budget to ease the burden on struggling industries. President RCCI Usman Shaukat also suggested offering tax incentives to export-based industries upon meeting export targets, along with providing necessary financial assistance to small and medium enterprises.

The Islamabad Women Chamber of Commerce and Industry (IWCCI) urged the government to allocate specific funds for women entrepreneurs in the upcoming budget, underscoring the need to create a more supportive environment for women-led businesses. The chamber also advocated for lowering the existing Rs5 Crore revenue threshold for corporate women, arguing that the current limit hinders many capable women entrepreneurs from formalizing and expanding their businesses.

The Paper and Stationery Association called for the removal of taxes on stationery items, noting that the federal government had promised to eliminate these taxes in the previous year’s budget cycle. The association urged the government to fulfill its commitment, emphasizing that these taxes should be immediately withdrawn to ensure that essential educational materials are affordable and accessible to students nationwide.

The President of the Faisalabad Chamber of Commerce stated that the Information Technology (IT) sector is relocating to Turkey and the UAE due to the absence of a gateway for international payments, which would directly impact export remittances.

The committee was informed that 30 IT companies from Faisalabad have already moved to Turkey and the UAE. This shift will negatively affect IT export remittances, preventing them from entering the country. The president mentioned that the country celebrates $2.4 billion in IT exports, adding that the potential is $10 billion and could increase to $20 billion if these issues are resolved.

Senators Sherry Rehman, Anusha Rahman Ahmad Khan, Fesal Vawda, and representatives from the Rawalpindi, Karachi, Sialkot, Faisalabad, and Lahore Chambers of Commerce and Industry were present.