Lawmakers Criticize FBR for Maintaining 1% Minimum Tax Alongside 29% Standard Rate
ISLAMABAD: Exporters are facing increased tax pressure as an 18% sales tax is set to be applied on imported raw materials used in export goods, highlighting a contradictory IMF policy that requires Pakistan to impose both minimum and standard income tax rates on exporters simultaneously.
Dr. Najeeb Memon, Member Tax Policy at the Federal Board of Revenue (FBR), revealed on Thursday that the IMF has insisted on retaining a 1% minimum income tax on exporters, even after introducing the standard 29% income tax rate. This move stems from uncertainty over revenue collection under the new system.
Previously, exporters paid only 1% income tax under the final tax regime, but the government raised this to 29% in the latest budget. The dual tax regime has drawn criticism from the National Assembly Standing Committee on Finance, as it contradicts international best practices and burdens exporters with double taxation.
Committee members and the Karachi Chamber of Commerce and Industry (KCCI) have urged the FBR to remove the 1% minimum income tax since the 29% standard rate is already in effect. However, Memon stated that the minimum tax cannot be withdrawn because the IMF demands its continuation for at least two to three years.
Syed Naveed Qamar, chairman of the Standing Committee, condemned the dual tax system as unfair and accused the FBR of complacency in tax collection. There has been no independent verification of the FBR’s claim regarding IMF directives, and past incidents show the FBR sometimes invokes the IMF to justify revenue measures.
Memon explained that the minimum tax is non-refundable, meaning exporters must pay both the minimum and standard taxes. The committee also expressed dissatisfaction over the absence of FBR Chairman Rashid Langrial at the meeting. Memon said Langrial was attending an IMF meeting, but Qamar noted he had just returned from an IMF-PM luncheon, implying the chairman chose not to attend.
Due to Langrial’s absence, the committee postponed approval of the government’s tax bill aimed at restoring a 25% income tax credit for teachers. The proposed amendment seeks to reduce tax payable by full-time teachers and researchers at recognized non-profit education or research institutions by 25%, but excludes medical professionals earning from private practice.
Additionally, the committee reviewed the 18% sales tax imposed on local raw materials used in exports during the last budget. Members and KCCI demanded the withdrawal of this tax, arguing it harmed local manufacturers. Dr. Memon warned that imported raw materials might soon face the same 18% tax, as the government plans to extend it to imports as well.
MNA Arshad Abdullah Vohra noted the crisis local raw material producers are facing due to the tax. Memon added that while the IMF may have overlooked this issue previously, the 18% tax on imports is expected to be implemented in the upcoming budget.
