ISLAMABAD:
The government is contemplating the introduction of a 1.5% withholding tax on the value of imports, potentially becoming the largest new revenue stream in the upcoming budget. This tax would be collected by banks at the time payments are made to foreign suppliers.
A senior official told The Express Tribune that the proposal aims to clamp down on widespread under-declaration of import values. The tax would apply only to commercial importers, who would be allowed to adjust it against their final tax liabilities.
Currently, commercial importers pay withholding tax while submitting goods declarations to the Customs Department. The new plan proposes deducting this tax at the point of payment to overseas suppliers through banking channels.
Sources reveal that the Federal Board of Revenue (FBR) has briefed the International Monetary Fund (IMF) on the idea to levy import taxes at three stages: upon arrival, during shipment, and when payments are made to exporters. It remains unclear whether the IMF has approved this approach, but the government sees it as a major effort to meet the next fiscal year’s tax target of over Rs14 trillion.
Finance Secretary Imdad Ullah Bosal confirmed that the budget presentation is still on track for June 10. Ahead of this, the Annual Plan Coordination Committee will meet on June 3, followed by the National Economic Council’s session on June 6 to finalize economic and development plans for FY25.
According to sources, the proposed withholding tax will be deducted when money is sent abroad via letters of credit, with banks implementing a system similar to that used for taxing overseas credit card payments.
FBR officials Dr. Najeeb Memon and Chairman Rashid Langrial did not respond to inquiries regarding this proposal.
A recent Policy Research Institute of Market Economy (PRIME) report, titled ‘Combating Illicit Trade in Pakistan’, estimates that the country loses approximately Rs3.4 trillion annually to black market activities. Nearly 30% of these losses are linked to misuse of the Afghan Transit Trade facility. Such illicit trade undermines legitimate businesses, government revenue, and consumer safety, fueled by outdated border controls, limited customs automation, lack of risk-based profiling, and poor scanning technologies.
If approved by Parliament, the withholding tax would provide the FBR a straightforward revenue collection mechanism via banks. Historically, the tax authority has struggled in areas where enforcement depends solely on its own resources rather than external withholding agents such as banks, provincial agencies, or employers.
Previously, the government has relied on indirect taxes, including last year’s controversial 20% federal excise duty (FED) on the packaged juice sector, which led to a 45% decline in sales, according to industry representative Atikah Mir. The Fruit Juice Council is lobbying to reduce the FED to 15%, arguing this would benefit both industry and tax revenues.
Another common FBR tactic is withholding genuine tax refunds to inflate revenue figures. Recently, Special Assistant to the Prime Minister Haroon Akhtar Khan met with Utopia Industries’ representatives regarding their pending tax refunds. Utopia, a leading exporter of mattress covers, pillows, comforters, and plastic goods, has struggled to recover over Rs3 billion despite providing all necessary documentation.
Founded in 2020 with a $50 million investment, Utopia is among Pakistan’s top 12 exporters by revenue and leads in container shipments abroad. It ranks as one of the top two Amazon sellers and generates $170 million in annual revenue. Its products, branded under its own name and labeled as Pakistani origin, are widely distributed in the US, Canada, and UK.
Company officials report Rs600 million in sales tax refunds remain unpaid from April to January, despite refund orders being issued. Additionally, Rs700 million in refunds are deferred, and Rs350 million in income tax refunds have been pending since 2022.
Utopia’s delegation also met the finance minister in Washington, DC last October and filed a complaint with the Federal Tax Ombudsman, but the matter remains unresolved. The company has sought assistance from multiple stakeholders, including the All Pakistan Textile Mills Association, Pakistan Textile Council, commerce and planning ministers, Special Investment Facilitation Council, and the Pakistani ambassador to the US, yet no progress has been made.
