Pakistan revealed on Thursday that the International Monetary Fund (IMF) rejected its proposal to abolish the additional 4% sales tax on unregistered businesses, instead linking its removal to expanding the tax base by 25%. The tax, initially introduced to compel businesses to register, has failed to achieve its goal, as many firms prefer paying the extra levy and passing the cost to consumers rather than joining the formal tax net.
FBR Admits Low Tax Compliance, Faces Business Backlash
During a Senate Standing Committee on Finance meeting, Federal Board of Revenue (FBR) official Dr. Hamid Ateeq Sarwar disclosed that out of 200,000 registered sales tax filers, only 60,000 actually pay taxes. The discussion turned heated as business leaders protested against new punitive measures in the budget, including arrest powers for tax evasion and restrictions on cash transactions over Rs200,000. Following trader strikes in Lahore and Karachi, the military-backed Special Investment Facilitation Council (SIFC) intervened, prompting the FBR to reconsider some measures.
Disputed Tax Collection Claims Raise Eyebrows
The FBR claimed before Prime Minister Shehbaz Sharif that it collected an additional Rs455 billion from the retail sector last fiscal year, with total income tax payments reaching Rs617 billion. However, critics questioned the figures, suggesting corporate sector payments may have been included under a “loose” retail definition. Senator Anusha Rehman (PML-N) highlighted legal loopholes that could enable harassment, while Minister of State for Finance Bilal Kayani assured that the PM had ordered zero tolerance for taxpayer intimidation.
Calls for Legal Reforms Amid FBR’s Tough Stance
While the FBR defended its crackdown—citing Rs2.2 trillion in attempted sales tax fraud—lawmakers demanded safeguards against arbitrary arrests. Senator Mohsin Aziz (PTI) warned that executive orders couldn’t override laws, but FBR officials argued immediate amendments would undermine parliamentary credibility. As tensions persist, the government faces a balancing act between IMF demands, business concerns, and public discontent over taxation policies.