PTBP Web Desk
The Federal Board of Revenue (FBR) has officially acknowledged that Pakistan’s high tax rates and rigid regulatory framework are pushing a growing number of businesses to relocate operations to Dubai. The admission came during a briefing to the Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, on Wednesday.
Hamid Attique Sarwar, Member Inland Revenue Operations at FBR, confirmed that this alarming trend has been identified and acknowledged by the board. The issue was brought into focus when multiple senators raised concerns about Pakistan’s unfriendly tax environment, which they said is driving away both domestic and foreign investors.
Senator Farooq H. Naek pointed out that the property tax rates for non-filers, currently ranging between 5% and 35%, are creating a punitive tax atmosphere. He added that several Pakistani individuals have reportedly acquired properties in the United Arab Emirates (UAE), especially in Dubai, without declaring equivalent income in Pakistan—a clear sign of widespread tax evasion.
The committee emphasized the urgency of creating a business-friendly environment to retain local investment and reduce capital flight. Chairman Mandviwalla stated, “Instead of forcing Dubai-based businesses to shut down, Pakistan must focus on providing better facilities and incentives to keep businesses operating locally.”
FBR officials admitted during the session that the current tax regime is heavy-handed, with excessive levies making it difficult for businesses to survive and grow. “It is acknowledged that taxes are being implemented very heavily,” Sarwar said, but clarified that the FBR’s role is only to implement and collect taxes legislated by Parliament.
Furthering its efforts to combat tax evasion in Pakistan, FBR has proposed raising the maximum penalty for business-related tax fraud starting July 2025. At present, the penalty is capped at Pakistan Rs 500,000, which Sarwar termed insufficient to deter fraudulent activities.
“The penalty must match the gravity of the offence,” Sarwar emphasized, noting that lower penalties have significantly hampered efforts to curb tax fraud. The revised penalty structure is expected to be tabled in Parliament for legislative approval.
The committee was also briefed about daily enforcement operations being carried out in Lahore, Karachi, and Islamabad, where an average of 20 businesses are sealed each day for various tax violations.
Sarwar shared a success story from the sugar industry, where a dedicated crackdown led to a 34.5% increase in tax revenue. He also revealed that 95% of sugar sector businesses are now linked to a real-time monitoring system, which has greatly enhanced transparency and compliance.
To further improve tax collection, FBR plans to launch a nationwide media campaign aimed at educating the public on tax compliance and introducing a whistleblower reward scheme. However, officials noted that Pakistan’s obligations under the International Monetary Fund (IMF) loan programs limit the introduction of incentive-based schemes, citing the need for fiscal discipline.
Another key focus of the meeting was the delay in sales tax refunds, especially for exporters. Senator Faisal Vawda and Chairman Mandviwalla expressed dissatisfaction over refund delays, especially since government policy requires refunds to be processed within 72 hours.
“Many complaints about delayed sales tax refunds have been received. Either fix the system or halt the policy altogether,” Mandviwalla remarked.
FBR officials responded by stating that refunds for five major export-oriented sectors—textiles, leather, surgical instruments, sports goods, and carpets—are now being processed smoothly via the FASTER system.
They reported that between July and April of the 2024–2025 fiscal year, FBR disbursed Rs 317.41 billion across 33,204 Refund Payment Orders (RPOs) through FASTER. According to them, there is no pending backlog in the verified refund claims for these sectors.
However, concerns remain about other export sectors, particularly the food export segment, which generates $4.8 billion annually. Mandviwalla noted that the food sector’s refunds had not been released, calling for a sector-wise restructuring of refund disbursements based on economic contributions.
FBR assured the committee that refunds for the food export sector would be released by the upcoming Friday, and added that all 72 export sectors under FBR’s jurisdiction are being reviewed and prioritized.
Moreover, the board proposed that local refunds be phased out, aligning with international practices where tax refunds are typically limited to export-related goods.
Committee Demands Transparency and Accountability
Chairman Mandviwalla also directed the FBR to submit a detailed report listing all outstanding refunds, along with timelines, affected sectors, and reasons for delays.
Due to the absence of several committee members and the Federal Minister for Finance, other agenda items were deferred until the next meeting.
