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Business Recorder
a day ago
- Business
- Business Recorder
FBR deploys taxmen on leading solar cos' premises
KARACHI: The Federal Board of Revenue (FBR) has tightened the noose around solar energy sector, deploying tax officials in the premises of country's leading solar energy companies to monitor sales record and plug revenue leakage under section 40-B of the Sales Tax Act 1990. As an intensified effort to ensure compliance in country's growing renewable energy sector, the FBR has given a go-ahead to the Chief Commissioner Inland Revenue, Corporate Tax Office Karachi to station its officers at the premises of top solar energy companies for a period of 30 days, the letter said. The monitoring exercise, under section 40-B of the Sales Tax Act 1990, has initially commenced against four prominent solar companies operating in Karachi. Sales Tax cut on solar panels import: Rs20bn revenue hit expected Sources claimed that these companies have reportedly been engaging in sales suppression to evade sales tax obligations. Therefore, the deployment is part of a targeted effort to verify it and ensure proper tax compliance, they said. 'The officers will monitor the sales of taxable goods and stock positions of these solar companies under section 40B of the Sales Tax Act 1990, which empowers the tax office to post officials at business premises to ensure compliance with tax regulations and prevent revenue leakage,' source said. The solar energy sector has experienced remarkable growth in Pakistan in recent years as the country is pursuing energy diversification strategies to reduce costly energy imports and address persistent power related issues, sources said. However, this rapid expansion has also raised concerns about potential revenue losses from non-compliance, they added. Furthermore, they said the 30-day monitoring period would allow FBR officials to conduct real-time oversight of business operations, sales transactions, and inventory management, adding that the monitoring exercise against these companies, which is expected to conclude within 30-day timeframe, may be expanded to other high-growth sectors to meet revenue targets. Copyright Business Recorder, 2025
Business Recorder
2 days ago
- Business
- Business Recorder
Key amendments made to Finance Bill: Tax fraud arrests only post-inquiry
ISLAMABAD: The government has introduced major amendments to the Finance Bill (2025-26), barring Federal Board of Revenue (FBR) from arrest of persons involved in tax fraud at the stage of inquiry and accused arrested may approach the competent court for release on bail. In cases of payment intermediaries and couriers in respect of digitally ordered goods from within Pakistan, the persons supplying digitally ordered goods from within Pakistan through online market place, website, software applications, the 2% of gross value of supplies would be deducted. The FBR will issue a Negative List of services exempt from sales tax under Islamabad Capital Territory (Tax on Services) Ordinance, 2001. FBR redrafts Sec 37A: Amended Finance Bill sets conditions for tax fraud arrests The amended bill revealed that no arrest under this section shall be made before the completion of inquiry. The accused arrested may approach the competent court for his release on bail under the provisions contained in sections 497 and 498 of the Code of Criminal Procedure, 1898. The purpose of prosecution under the provision of section 37A and 37B of this Act shall remain to create sufficient deterrence against tax fraud and provide for retribution for commission of tax fraud. A three-member committee of the FBR would authorise the Commissioner to issue warrant of arrest against a person involved in tax fraud in cases where tax loss exceeds Rs 50 million. The said arrest would be made in a situation where the accused is intentionally or wilfully not joining the investigation after three notices; accused attempting to abscond or there are sufficient grounds that the accused would temper with the evidence. The amended Finance Bill (2025-26) has also revised penalty regime for committing tax fraud and non-filing of monthly statements by intermediaries or courier companies collecting payments from online marketplaces. In case the person failed to obtain sales tax registration, notwithstanding anything contained in this Act or any other law for the time being in force, the Commissioner shall have the powers to direct banking companies, scheduled banks and other financial institutions, through an order in writing, to intermittently suspend the operation of the bank account of such any person for three working days. The Commissioner shall repeat suspension specified in sub-section (2), for two more times with an interval of one week between the suspensions. The amendments in Finance Bill have reduced sales tax on solar panels from 18 to 10 percent and Federal Excise Duty of 10 percent on Day old Chicks (DOC) of poultry sector. The rate of tax increased from 25 percent to 29 percent on dividend received by a company from mutual fund deriving income from profit on debt. The withholding tax has been increased from 15 to 20 percent on profit on government securities paid to any person (institutional investors) other than an individual. The amended Finance Bill has given tax exemption to Beaconhouse National University; Federal Ziauddin University; Punjab Police Welfare Organization, Lahore and Army Officers Benevolent Fund/Benevolent Fund/Bereaved Family Scheme. The tax exemption would be available on any monetary award received from the Federal or Provincial Government or from a Public Office holder by a sportsperson winning a medal in international Olympic Games representing Pakistan. Provided that this clause shall be applicable from tax year 2025. To bar on transfer of Immoveable Property of non-filers, the committee after affording a personal hearing to the person, shall either recommend for imposition of bar on transfer of immovable property or recommend the Commissioner to remove the bar imposed under section 14AC. The amended Finance Bill revealed that Federal Government may, by notification in the official Gazette, subject to such conditions and restrictions as may be specified therein, exempt any country, any class of goods or services and class of persons from the chargeability under this Act, as deemed appropriate. The amended Bill (2025) further elaborated that where an individual is deriving income under the head 'income from other source' on account of any annuity or pension, such individual shall be charged to tax on his annuity or pension income received at the rate provided in proviso to clause (2) of this Division. According to the amended Finance Bill (025-26), the committee after affording a personal hearing to the person, shall either recommend for imposition of bar on transfer of immovable property or recommend the Commissioner to remove the bar imposed under section 14AC. For imposition of bar on transfer of immovable property, the Committee shall recommend the Commissioner for imposition of bar on transfer of immovable property: Provided that the Committee shall provide an opportunity to obtain registration within fifteen days prior to the recommendation. The amended Bill 2025 revealed that where an individual is deriving income under the head 'income from other source' on account of any annuity or pension, such individual shall be charged to tax on his annuity or pension income received at the rate provided in proviso to clause (2) of this Division.' The amended Bill revealed that a foreign vendor shall have significant digital presence in Pakistan under this Act, where the foreign vendor supplies digitally ordered services and goods from outside Pakistan to any user in Pakistan, if the aggregate amount exceeds one million rupees in a financial year along with one of the following additional factors – (a) existence of a user base and the associated data input. (b) billing or collection in local currency or with a local form of payment. (c) responsibility for the final delivery of goods and services to Pakistani consumers. (d) responsibility for the provision by the foreign vendors of other support services (after sales services, repairs and maintenance) and (e) continued marketing and sales promotion activities, online or not, to attract customers.' For the tax treatment to NLC, the amended Finance Bill further specified that the rate of tax under clauses (b) and (c) of sub-section (1) of section 153 and sub-section (1) of section 236A to be deducted and collected from the National Logistics Corporation shall be 3% of the gross amount of payment and gross sale price of a lease of the right to collect tolls, respectively: Provided that the tax so deductible and collected shall be minimum tax and in case the normal income tax, chargeable under Division II of Part I of First Schedule on the taxable income of the taxpayer, is higher than the amount of tax under this clause, the taxpayer shall be liable to pay the normal income tax, amended Finance Bill added. Copyright Business Recorder, 2025
Business Recorder
2 days ago
- Business
- Business Recorder
Quarterly Payments Systems Review report
EDITORIAL: The State Bank of Pakistan's Quarterly (January-March) Payments System Review report — bafflingly limited to just three months, at best described as extremely short term — has revealed some disturbing though not surprising data: 89 percent of Pakistan's retail payments are conducted through digital channels but represent merely 29 percent of the value of total transactions; and paper-based and over-the-counter (OTC) payments processed through bank branches and branchless banking agents account for only 11 percent of total volume and 71 percent of total value. This discrepancy can partly be explained by the informal economy which is projected at around 50 percent of the formal economy — a projection at best given that quantifying that which is outside the purview of the government statistical machinery is a challenging task at best. The Federal Board of Revenue (FBR), in its indefatigable quest to generate more total revenue each year, focuses on the revenue it could generate if the informal economy is brought into the tax net yet one must not lose sight of the fact that the informal sector provides employment opportunities to hundreds of thousands of Pakistanis who, if left to the formal sector, could not be accommodated. The SBP report noted that Raast (instant payment system processed 371 million transactions worth 8.5 trillion rupees during January-March 2025) and RTGS (real time gross settlement system handled 1.5 million transactions amounting to 347 trillion rupees) have been instrumental in accelerating digital payments. These numbers are impressive; however, it would have been useful to identify how many of these transactions were carried out by the informal sector. Hernando de Soto maintained that in countries where the informal sector is sizeable macroeconomic data can never be reliable because the informal economy has a strong preference to using paper-based or cash for transactions. And added credibly that the informal sector gives birth to a situation whereby the influence of informal activities in an economy can only be measured through indirect means with a long information delay. Be that as it may, the reason behind the greater use of paper- or cash-based transactions in Pakistan's case is not only due to low levels of literacy but also due to rampant digital fraud that is reported in the media attributable to insufficient investment in digital security. Two recent rather disturbing cases of digital fraud relate to the pensioners and the vulnerable recipients of Kifaalat, the Benazir Income Support Programme's (BISP's) quarterly cash disbursements. At present, BISP beneficiaries who report fraud complain that FIA does not proactively investigate as sums involved are very small; however, this leakage can be plugged if the government invests appropriate amounts in not only education but also in providing security in digital payments. And, needless to add, the rather frequent cessation of internet services in Pakistan, ostensibly for security reasons, compromises the reliability of the use of digital services that requires an urgent revisit. To conclude, while the digital imprint on transactions within Pakistan is certainly rising yet there is a need to take other measures in order to ensure that it is strengthened with time — measures that must include dealing with security concerns, by not through shutting down the internet which has also had disastrous consequences on those who run their business on the net, but through law enforcement agencies. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
Sindh Assembly approves FY26 budget
KARACHI: The Sindh Assembly on Wednesday approved the provincial budget for the fiscal year 2025–26, amounting to Rs3.45 trillion, along with Rs156.069 billion in supplementary grants for the outgoing year. Marking a 13 percent increase from the previous year's outlay, the budget places significant emphasis on social protection, infrastructure development, economic reforms, and targeted relief for low-income groups. Chief Minister Syed Murad Ali Shah presented the Sindh Finance Bill 2025, which aims to rationalise taxes and reform financial laws to reflect changing economic realities. The budget introduces major tax relief measures, including the abolition or restructuring of six key levies. Among these, professional tax has been eliminated, offering Rs5 billion in direct relief to salaried individuals and small businesses. Entertainment duty has also been removed to promote cultural activities. Additionally, revenue fees, such as those for land transfer, certified copies, sales certificates, solvency, and succession documents have been slashed by 50 percent. Annual tax on commercial vehicles has been reduced to Rs1,000, while third-party motor insurance stamp duty has been capped at Rs50, and motorcycles will be exempted from mandatory insurance starting FY 2025–26. The provincial government has also abolished cotton fees in response to a 30.7 percent decline in the agricultural produce and removed the drainage cess to mitigate the impact of erratic weather and poor crop yields. Amendments or repeals were approved for seven laws, including the Stamp Act (1899), Motor Vehicles Act (1939), Sindh Entertainment Duty Act (1958), Sindh Motor Vehicle Taxation Act (1958), and specific sections of the Sindh Finance Act (1964), the Sindh Sales Tax on Services Act (2011), and the Sindh Local Government Act (2013). The budget further raises the sales tax exemption threshold for businesses from Rs2.5 million to Rs5 million, offering an estimated Rs400 million in relief. Small enterprises with an annual turnover of up to Rs4 million will now be exempt from sales tax. The government expects that the removal of local cess will help lower production costs and boost agricultural profitability. Murad Ali Shah highlighted that total expenditures for FY 2025–26 are projected at Rs3.45 trillion. Of this, 39 percent is allocated to salaries, 62 percent to current revenue expenses (Rs2.15 trillion), 30 percent to development expenditure (Rs1.018 trillion), and Rs281.7 billion to capital expenses. Grants to local and autonomous bodies constitute 29 percent, non-salary operations and maintenance 19 percent, and pensions 13 percent. He noted that, despite a 3.6 percent drop in last year's budget, Sindh expects to receive Rs3.111 trillion in revenues, marking a 21.4 percent rise from revised estimates. The province anticipates an average annual revenue growth of 12.5 percent over the next three years. If the Federal Board of Revenue (FBR) meets its Rs14.131 trillion target, Sindh expects to receive approximately Rs269 billion from the federal divisible pool. Major allocations include Rs42.2 billion for public universities, Rs10.4 billion for medical education, and Rs5 billion for the 'Inclusive City' initiative supporting persons with disabilities. Other allocations include Rs6.6 billion for the Sindh Institute of Child Health & Neonatology, Rs5.2 billion for ambulance services under the Sindh Emergency Health Services, and Rs10 billion for a new hospital in Larkana. The SIUT has been allocated Rs21 billion, NICVD Rs23 billion, and PPHI Rs16.5 billion. In terms of infrastructure and green energy, Rs10 billion has been earmarked for the Dumloti–DHA water pipeline, Rs3.1 billion for the Hub Canal, and Rs25 billion for green energy projects. Public health initiatives aligned with the Sustainable Development Goals (SDGs) have received Rs45 billion. Agriculture and social support programs include Rs8 billion for the Benazir Hari Card, Rs1.8 billion for livestock breeding, and subsidies for solar tube-wells, drip irrigation systems, and super seeders. Low-income housing projects will receive Rs2 billion, while Rs2 billion has been allocated to the Sindh Peoples Support Program. Additional support includes Rs200 million for orphans and widows, and Rs500 million per initiative for women's empowerment in agriculture and SMEs. The budget also doubles stipends for persons with disabilities and increases assistive devices distribution from 20,000 to 40,000 units. Speaking after the budget's passage, Murad Ali Shah extended congratulations to all members of the Sindh Assembly, including opposition legislators, and expressed gratitude to his party leadership and cabinet. He noted with appreciation that every member of the opposition participated in the budget debate, calling it a healthy sign of democratic engagement. Murad Ali Shah remarked that Sindh belongs to all, and love for the province should rise above political point scoring. 'It is heartening that another budget has been passed by this Assembly. On this important occasion, I thank the party leadership, the cabinet, and all members of this House who took part in the process,' he said. The Chief Minister added that wherever a majority exists, the government has the mandate to pass a budget, but meaningful suggestions are welcome from all quarters. 'I have speeches from every member; some have made very constructive proposals, and we will consider them,' he said, adding that future efforts would include digitizing cut motions in the budget to ensure better tracking and evaluation. He praised the relentless work of the Sindh Finance Department in preparing the budget, highlighting that the department staff worked late nights for weeks without breaks. Murad acknowledged the contribution of P&D's Najam Shah and announced bonuses for both Finance Department personnel and the staff of the Assembly for their exceptional efforts. Opposition Leader Ali Khurshidi also addressed the House, extending his congratulations on the budget's approval and expressing hope that the government would work to overcome its shortcomings. 'The opposition has played its part, and I commend all opposition members as well as the government,' he said. Jamaat-e-Islami (JI) MPA Muhammad Farooq congratulated all members, noting that democratic proceedings enhance trust in governance. He appreciated the Chief Minister's openness to criticism. PTI's Shabbir Qureshi said both government and opposition members represented their constituencies well during the budget session, praising ministers Sharjeel Inam Memon and Zia Lanjar for their contributions. 'Murad Ali Shah showed grace in his final speech. I hope this marks the beginning of a new era of development in Sindh,' he said. Senior Minister Sharjeel Inam Memon lauded the role of journalists and cameramen who worked under challenging conditions throughout the session. 'This time, the budget session ended on a positive note, unlike in previous years. Everyone deserves congratulations for that,' he remarked. In his closing remarks, Murad Ali Shah called the budget a 'responsible, inclusive, and forward-looking financial plan' that promotes equitable development and responds to the economic challenges faced by the people. 'This budget is a roadmap for recovery, opportunity, and social justice in Sindh,' he said. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
Budget 2025–26: Between recovery and reality
As the government tabled the federal budget for FY2025–26 on June 10, it did so against a backdrop of cautious optimism. The Pakistan Economic Survey 2024–25 painted a picture of an economy clawing its way back from the brink, supported by record-low inflation, fiscal discipline, and a current account surplus. Budget 2025–26 now attempts to build on that fragile stability, setting an ambitious fiscal trajectory while contending with the deep structural limitations of Pakistan's public finance system. The federal budget for FY2025–26 has been set at Rs 17.57 trillion, marking a 7 percent decline from the revised figures of the outgoing year. Of this, Rs 16.28 trillion is allocated to current expenditures and Rs 1 trillion to the Public Sector Development Programme (PSDP). Interest payments alone are projected at Rs 8.21 trillion, while defence expenditure has been increased to Rs 2.55 trillion. The government expects a fiscal deficit of 3.9 percent of GDP and a primary surplus of 2.4 percent, in line with IMF expectations for fiscal consolidation. The Economic Survey confirms that GDP grew by 2.68 percent in FY2024–25, driven by 3.42 percent growth in industry and 3.8 percent in services. Inflation, previously a key destabilizer, fell to an average of 4.7 percent between July and April FY25, down from 26 percent a year earlier. The current account recorded a US$1.9 billion surplus, thanks to a 31 percent increase in remittances (to US$31.2 billion) and a 6.4 percent rise in exports. Foreign reserves stood at US$16.6 billion as of April. However, growth in agriculture stagnated at 0.56 percent, large-scale manufacturing contracted by 1.47 percent, and foreign direct investment remained subdued at $1.8 billion reflecting in the fact that the recovery remains fragile and uneven. To finance this year's outlay, the government expects gross revenues of Rs 19.28 trillion. The Federal Board of Revenue (FBR) is tasked with collecting Rs 14.13 trillion in tax revenues, a nearly 40 percent increase over the previous year. Non-tax revenues are expected to add Rs 3.58 trillion, with the petroleum levy budgeted at a record Rs 1.468 trillion. As per the 7th National Finance Commission (NFC) Award, 57.5 percent of the divisible pool will be transferred to provinces, amounting to Rs 5.14 trillion. This leaves the federal government with a shrinking share to finance debt servicing, national defence, subsidies, and federal programmes a structural constraint repeatedly highlighted in the budget document. A defining feature of the budget is its revised tax regime for salaried individuals. To provide relief to the middle class, income tax slabs have been adjusted. No tax is due on annual income up to Rs 600,000. Income between Rs 600,001 and Rs 1.2 million is taxed at 1 percent, while rates for higher income brackets are 11 percent (Rs 1.2–2.2 million), 23 percent (Rs 2.2–3.2 million), and 35 percent for income above Rs 4.1 million. These revisions aim to marginally reduce the burden on lower-income earners, though inflation continues to weigh heavily on real incomes. To broaden the tax base and crack down on informal economic activity, the government has taken a tough stance on non-filers. Withholding tax on cash withdrawals by non-filers has increased from 0.6 percent to 1 percent. Additionally, non-filers will be barred from opening bank accounts, investing in mutual funds or securities, and purchasing vehicles or immovable property. These measures are part of a broader effort to increase documentation and compliance, although past experience suggests that enforcement will remain a major challenge. On the corporate front, the government has slightly reduced the super tax on high-income corporations from 10 percent to 9 percent. A new National Tariff Policy has been announced, promising gradual reductions in additional customs and regulatory duties. A carbon levy of Rs 2.5 per liter has been introduced on petroleum products, to be raised to Rs 5 per liter next year, in line with green finance commitments under the IMF's Resilience and Sustainability Facility. The budget makes space for social protection, albeit selectively. The Benazir Income Support Programme (BISP) has received a record allocation of Rs 716 billion, expected to support over 9 million families. Pension outlays have been set at Rs 1.055 trillion, and subsidies for the power sector at Rs 1.036 trillion. Despite these efforts, combined allocations for education, health, and population welfare remain under 2 percent of GDP far below international benchmarks. Human capital investment continues to lag behind, undermining long-term development goals. Climate change receives token attention in the budget. While the Economic Survey mentions carbon markets, green sukuks, and Article 6 cooperation under the Paris Agreement, the budget lacks specific allocations for climate adaptation or mitigation. Gilgit-Baltistan and Khyber Pakhtunkhwa, which offer immense potential in forest-based carbon credits remain excluded from federal fiscal incentives tied to environmental performance. Notably, forestry which offers one of the most viable and scalable options for carbon offset generation in Pakistan remains underfunded and absent from core budgetary priorities. Gilgit-Baltistan, Khyber Pakhtunkhwa, and parts of Balochistan, which hold significant forest reserves, could become leaders in nature-based solutions if adequately supported through fiscal incentives and carbon financing frameworks. Nominal GDP for FY2025–26 is projected at Rs 129.57 trillion, with growth expected to reach 3.6 percent. These targets hinge on sustained macroeconomic stability, improved investor confidence, and an uninterrupted flow of multilateral financing. Risks include global economic headwinds, geopolitical uncertainty, and Pakistan's limited fiscal space, which is heavily consumed by debt obligations. In essence, Budget 2025–26 reflects a cautious but necessary balancing act. It offers incremental relief to salaried taxpayers, strengthens social protection through BISP, and recommits fiscal responsibility under the IMF's watch. However, the structural issues persist: an overreliance on indirect taxation, underinvestment in people and climate, and a weak provincial-federal fiscal arrangement that curbs development ambition. The true test lies in implementation whether the promises made in this budget can be translated into lasting, inclusive, and sustainable economic resilience for the people of Pakistan. Copyright Business Recorder, 2025
