SAI submits comprehensive proposals for federal budget
In budget recommendations, SAI President Ahmed Azeem Alvi and former president Riaz Uddin, who chairs the association's taxation committee, emphasized the need to transform budget-making into a strategic economic tool rather than maintaining it as a routine fiscal exercise.
The industry body emphasized the institutional separation of tax policy formulation and tax administration to avoid conflicts of interest and align with global best practices.
Drawing comparisons with the UK and other neighbouring countries' models, SAI suggested the establishment of a structure where tax policy rests with the Ministry of Finance, revenue sharing is managed by an independent finance commission, and consumption taxes are regulated by a dedicated council.
Addressing structural weaknesses in the taxation system, SAI noted that Pakistan's income tax base remains narrow-just 9 to 10 percent of GDP- while the formal industrial sector bears a disproportionate tax burden.
The association recommended widening the tax net to include all untaxed and under-taxed sectors and capping the maximum income tax rate on business income at 25 percent over the next three years. It further proposed the abolition of the Super Tax, terming it an outdated and unjust burden, and called for relief on inter-corporate and individual dividend taxation.
Ahmed Azeem Alvi and Riaz Uddin expressed serious concerns about recent amendments to the Income Tax Ordinance through Ordinance IV of 2025, particularly changes to Sections 138(3A), 140(6A) and 175C of the Income Tax Ordinance. According to SAI, these amendments grant excessive powers to tax authorities and contravene Articles 4, 18, and 77 of the Constitution. The association demanded that the amendments be withdrawn immediately, arguing that they could deter compliance, encourage informality, and diminish investor confidence.
Regarding sales tax reforms, SAI leaders pointed out persistent challenges due to overlapping federal and provincial jurisdictions. It proposed a harmonized General Sales Tax (GST) structure supported by a single compliance portal, enabling seamless cross-jurisdictional input tax adjustments. The association stressed the need for expeditious refund mechanisms, with refund payment orders (RPOs) to be issued within five working days of claim submission and payments processed shortly thereafter.
Concerns were also raised about the prevailing 22 percent combined sales tax and further tax rate, which the association believes fuels evasion and hinders formalization of the economy. A review of the tax rate structure was urged to reduce distortions and incentivize registration.
SAI Chief urged the government to implement progressive reductions in the sales tax rate, targeting a 15% rate over the next three years. The association argues that this reduction will help lower the cost of doing business for the formal tax-paying sector and promote overall economic growth.
He also called for the abolition of the additional sales tax, which it claims encourages the continuation of the informal sector by allowing businesses to evade registration and tax obligations. According to the association, this perpetuates a cycle of non-compliance, hindering the formalization of the economy.
Furthermore, the association recommends that sales tax exemptions on essential goods, including basic staple foods, pharmaceuticals, and education-related products, should be maintained. These exemptions are seen as crucial in providing a safety net for the common man, particularly in the face of inflationary pressures.
SAI also requested the restoration of zero-rating on export facilitation schemes and educational stationery, as promised by the Finance Minister in his budget closing remarks in June 2024. The association believes that reinstating these exemptions will promote the export sector and ease financial burdens on educational institutions. In addition, the association proposed the introduction of a lower sales tax rate of 5% for other essential and deserving items to further reduce the financial strain on consumers.
The industry body called for the removal of area-specific sales tax exemptions in the former tribal areas (FATA/PATA). The association stresses that such exemptions should not continue in any form, in line with the broader goal of tax uniformity and fiscal reform across the country.
Ahmed Azeem Alvi and Riaz Uddin also emphasized for comprehensive reforms in Pakistan Customs, highlighting outdated legislation, tariff fragmentation, under-invoicing, and ineffective enforcement as key challenges. It recommended a revision of the Customs Act to align with WTO and WCO standards, simplification of duty structures, and adoption of a unified valuation and appraisal system. SAI advocated for the port of entry to be designated as the sole revenue collection point to prevent revenue leakage and ensure smooth inland movement of goods.
On social welfare schemes, they criticized the current management of employee welfare programs (EOBI, PESSI/SESSI, WWF, and WPPF) as inefficient and outdated. The schemes largely funded by employers, offer minimal influence to contributors over fund management and disbursement.
The association proposed the integration of these schemes into a unified authority with digital interfaces, central governance, and tripartite representation from employers, employees, and regulators. Disbursements, it suggested, should be made via mobile payment platforms, while health and related services could be outsourced to third-party providers.
The budget proposals underscore SAI's position that economic policy should balance revenue needs with industrial growth objectives, particularly through measures that enhance Pakistan's export potential and attract productive investment.
Copyright Business Recorder, 2025
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