Ahead of Pakistan’s federal budget for fiscal year 2025-26, the Karachi Chamber of Commerce and Industry (KCCI) has called on the government to expand the tax net by bringing approximately 4.6 million unregistered industrial and commercial entities into the tax system. The business community is concerned about the increasing tax burden on already compliant taxpayers and urges authorities to focus on registering unregistered businesses rather than imposing additional taxes on existing taxpayers.
The KCCI submitted these budget proposals to the Ministry of Finance, emphasizing the need to tap into the large pool of identifiable but untaxed businesses. According to KCCI, several businesses and individuals remain outside the formal tax net despite being traceable through various official records, including electricity and gas connections, vehicle and property registrations, travel data, and banking transactions. This disconnect, the chamber argues, creates an unfair tax regime that disproportionately burdens compliant taxpayers and results in revenue shortfalls for the government.
Highlighting the scale of this issue, KCCI pointed to data from the National Electric Power Regulatory Authority (Nepra) up to June 2024, which shows that there are 4.6 million commercial and industrial electricity connections in the country. However, only around 396,383 of these entities are registered for sales tax purposes, illustrating a significant untapped potential within the tax ecosystem.
KCCI urged the government to use available data sources such as electricity records from Wapda and Karachi Electric (KE) to identify and register these businesses effectively. Bringing these entities into the tax net, the chamber argued, would help increase revenue collection, reduce the government’s reliance on punitive measures like the Further Tax, and promote fairness and compliance within the taxation system.
The Federal Board of Revenue (FBR) has seen some improvements in compliance recently, with 5.215 million tax returns filed as of November 6, 2024. This represents a 76% year-on-year increase compared to 2.959 million returns filed in the same period in 2023. However, despite this progress, FBR collected Rs9,309 billion during July-April of FY2024-25, falling short of its target of Rs10,130 billion by Rs821 billion.
Due to these shortfalls, the government has revised FBR’s annual revenue target downward from Rs12,913 billion to Rs12,334 billion for the ongoing fiscal year. Nevertheless, a revenue gap exceeding Rs600 billion is still anticipated by year-end. For the upcoming fiscal year 2025-26, provisional plans suggest raising the tax collection target to approximately Rs14,300 billion, making broadening the tax base a critical priority for the government.
Beyond expanding the tax net, KCCI’s budget proposals include a series of targeted policy recommendations aimed at boosting economic growth. These include reviving the real economy through reforms, reinstating zero-rating for local supplies under the Export Facilitation Scheme (EFS), and abolishing taxes on shrimp broodstock to support Pakistan’s seafood exports. The chamber also advocated for reinstating zero-rating for gold, allowing gold exports with at least 20% value addition, and reclassifying motorcycle and auto parts as intermediate goods by removing them from the third schedule.
For the tea sector, KCCI recommended a review of existing policies to address revenue leakages and strengthen the industry’s growth potential.
According to KCCI, implementing these recommendations could help ease the tax burden on compliant businesses, incentivize growth in key sectors, and assist the government in achieving its ambitious revenue targets for FY2025-26.
This push from KCCI reflects a growing consensus in Pakistan’s business community that expanding and formalizing the tax base is essential to creating a more equitable and sustainable economic framework, especially as the country prepares for its next federal budget.