ISLAMABAD: Exporters in Pakistan are facing a severe financial setback as the Federal Board of Revenue (FBR) has moved forward with applying both a 1% minimum income tax and the standard 29% corporate income tax rate, in line with instructions reportedly issued by the International Monetary Fund (IMF).
Lawmakers and business representatives are calling the policy unjust and economically damaging.
Dr. Najeeb Memon, FBR’s Member Tax Policy, told the National Assembly Standing Committee on Finance on Thursday that the IMF directed Pakistan to retain the 1% minimum income tax on exporters for the next two to three years, even as the standard tax rate of 29% is imposed.
Exporters, who were previously taxed under a final tax regime at just 1%, now face both the minimum and standard tax burdens simultaneously.
Dr. Memon explained that this dual taxation is meant to ensure revenue certainty until the new regime stabilizes. He further clarified that the minimum tax is not refundable, effectively compelling exporters to pay both levies.
Lawmakers Condemn Dual Taxation
Committee Chairman Syed Naveed Qamar (PPP) denounced the policy, calling it a blatantly unfair system.
He accused the FBR of prioritizing passive revenue collection over reform and efficiency, saying that the authority prefers collecting taxes without doing the necessary groundwork.
“This approach is completely contradictory to international best practices,” said Qamar, emphasizing the need for a transparent and growth-oriented tax policy for exporters.
He further criticized the absence of FBR Chairman Rashid Langrial from the meeting.
When Memon claimed Langrial was attending an IMF meeting, Qamar responded that he had just come from a luncheon with IMF and Prime Minister Shehbaz Sharif, and the FBR chairman was not present there.
Due to Langrial’s absence, the committee refused to review a key tax reform bill — the Income Tax Second Amendment Bill — which includes the restoration of a 25% tax credit for full-time teachers and researchers in non-profit, HEC-recognized institutions.
This benefit, if approved, would be retroactively applied from July 1, 2022, and will remain valid until Tax Year 2025. However, teachers involved in private medical practice or revenue-sharing from patient fees will be excluded from this relief.
Sales Tax on Raw Materials Fuels Industry Concerns
Another issue that drew significant criticism was the imposition of 18% sales tax on local raw materials used in the production of export goods — a measure introduced in the previous federal budget.
Members of the committee, joined by representatives from the Karachi Chamber of Commerce and Industry (KCCI), demanded the withdrawal of this tax.
Memon indicated that the 18% sales tax may soon be extended to imported raw materials as well, aligning local and import taxation.
“It is likely that the upcoming budget will also apply this tax to imports,” he said, adding that the IMF may not allow the disparity between local and imported inputs to persist.
MNA Arshad Abdullah Vohra voiced concerns over the financial strain placed on domestic producers. “Local raw material suppliers are already struggling, and this tax without a parallel levy on imports makes the playing field even more uneven,” he said.
While the 18% tax on local supplies is currently being implemented, its extension to imports would mark a significant shift, likely leading to higher input costs across export-oriented industries.
Credibility Questions and Policy Transparency
Despite Dr. Memon’s repeated references to IMF directives, there was no independent verification of the IMF’s demand to retain both tax regimes.
In the past, officials have allegedly cited the IMF to push through revenue measures that suited the FBR’s internal goals.
The controversy over exporter taxation adds another layer to the broader debate on Pakistan’s tax policy under IMF oversight, where economic stabilization efforts are frequently pitted against industrial growth and ease of doing business.
As the next budget approaches, exporters, lawmakers, and business leaders are urging the government to reconsider the current tax approach — one that they argue risks undermining the competitiveness of Pakistan’s crucial export sector.
