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ISLAMABAD: The Federal Board of Revenue (FBR) has confirmed that the government will soon impose an 18% sales tax on imported raw materials for exports, aligning with International Monetary Fund (IMF) demands despite growing backlash from exporters over a mounting tax burden that has already pushed some of existing businesses out of Pakistan.
During a National Assembly Standing Committee on Finance session held Thursday, Dr. Najeeb Memon, FBR’s Member Tax Policy, revealed that the IMF instructed Pakistan to maintain dual taxation on exporters—retaining the 1% minimum income tax while enforcing the standard 29% income tax—alongside the extension of the 18% sales tax to imported inputs.
Exporters Face Dual Tax Burden
Previously, exporters were only subjected to a 1% final income tax rate. However, under the current policy shift, the government has transitioned to a standard 29% income tax rate while still enforcing the 1% minimum tax. This policy, reportedly backed by the IMF, aims to provide revenue certainty but has been criticized for being contradictory to international best practices.
Committee Chairman Syed Naveed Qamar slammed the dual-tax policy, calling it “highly unfair” and accusing the FBR of choosing convenience over efficiency. The Karachi Chamber of Commerce and Industry (KCCI) and multiple committee members urged the withdrawal of the 1% minimum tax since the 29% tax is already in effect, but Memon clarified that the IMF requires the dual structure to remain for at least two to three more years.
18% Sales Tax Expansion to Imports Expected
The issue of the 18% sales tax on imported raw materials for exports also dominated the meeting. While the tax was previously imposed only on local raw materials used in exportable goods, Memon stated that imported raw materials would now likely face the same levy in the upcoming budget.
MNA Arshad Abdullah Vohra noted that the lack of parity between local and imported inputs has created a crisis for local manufacturers. Memon responded that while the IMF may have previously overlooked the import component, it would now be included to ensure uniform taxation.
Deferred Tax Credit Bill and FBR Chairman’s Absence
The committee also deferred discussion on the Income Tax Second Amendment Bill due to the absence of FBR Chairman Rashid Langrial, who was reportedly attending IMF discussions. The proposed amendment seeks to reinstate a 25% income tax rebate for full-time teachers and researchers, retroactive from July 2022 until the 2025 tax year. However, the benefit excludes medical professionals engaged in private practice.
The evolving tax policy landscape has triggered concerns among exporters and legislators alike, who warn that the increasing tax burden could hinder competitiveness and strain the country’s fragile export sector.
