ISLAMABAD: In a bid to curb under-invoicing and bolster revenue collection, the government is considering introducing a 1.5% withholding tax on the value of imports—potentially one of the largest new revenue measures in the upcoming federal budget. The tax would be collected by banks at the time payments are made to foreign suppliers.
Targeting commercial importers, the proposed tax would be adjustable against their final tax liabilities and would not apply to non-commercial imports. Unlike the current practice where withholding tax is paid upon filing goods declarations with Customs, this new system would shift collection to the banking stage—when funds are remitted abroad.
According to sources, the Federal Board of Revenue (FBR) has shared the proposal with the International Monetary Fund (IMF), outlining plans to tax imports at three critical stages: upon entry, during shipment, and at the point of payment. While IMF’s formal stance on the proposal remains unclear, the measure is seen as a key component of the government’s strategy to meet next year’s ambitious tax target of over Rs14 trillion.
The withholding tax would operate similarly to taxes currently deducted by banks on international credit card payments, streamlining enforcement and minimizing evasion.
Finance Secretary Imdad Ullah Bosal confirmed that the federal budget will be presented on June 10, with the Annual Plan Coordination Committee meeting set for June 3 and the National Economic Council convening on June 6 to finalize development and macroeconomic plans for FY25.
FBR officials, including spokesperson Dr. Najeeb Memon and Chairman Rashid Langrial, did not respond to requests for comment.
A recent report by the Policy Research Institute of Market Economy (PRIME) estimated that Pakistan loses about Rs3.4 trillion annually to illicit trade, with nearly 30% linked to the misuse of the Afghan Transit Trade. These losses equal around 26% of the current fiscal year’s tax target, the report noted, highlighting weak customs enforcement, outdated scanning technology, and lack of risk-based profiling as major issues.
If approved by Parliament, the new tax could become a relatively straightforward tool for revenue collection—especially since it would be executed through banks. Historically, the FBR has struggled with enforcement in areas not reliant on third-party withholding agents.
The government’s growing reliance on indirect taxation has drawn criticism. Last year’s 20% federal excise duty on packaged juice, for example, led to a 45% drop in sales, according to industry representative Atikah Mir. The Fruit Juice Council is now lobbying for the duty to be reduced to 15%.
Another controversial FBR tactic has been the delay of legitimate tax refunds to artificially inflate revenue figures. On Thursday, Special Assistant to the Prime Minister Haroon Akhtar Khan met with representatives from Utopia Industries to discuss over Rs3 billion in unresolved tax refunds.
Utopia Industries, a major exporter of bedding and plastic goods, has reportedly been waiting on Rs600 million in sales tax refunds from April to January, with another Rs700 million deferred and Rs350 million in income tax refunds pending since 2022. Despite multiple appeals—to the finance minister, Federal Tax Ombudsman, and various business councils—the issue remains unresolved.
Founded in 2020 with a $50 million investment, Utopia now ranks among Pakistan’s top 12 exporters by revenue and is one of the leading Pakistani sellers on Amazon, with annual revenues of $170 million. All products are sold under its own brand, labeled “Made in Pakistan,” and are widely distributed across North America and the UK.
