KARACHI: The government is weighing a proposal to introduce a 1.5 percent withholding tax on import-related payments as part of its upcoming budget strategy for the fiscal year 2025–26. The move, if implemented, will shift the tax collection mechanism from Customs to banks, with financial institutions tasked with collecting the tax when remittances are sent to foreign suppliers.
This new tax plan would primarily target commercial importers and is expected to generate a significant portion of revenue in the next fiscal year. The tax will be adjustable against final income tax liabilities, meaning it will not be treated as a minimum or final tax, but rather as an advance payment.
The proposal aims to enhance transparency in import valuations and curb practices such as under-invoicing. By tying tax collection directly to outward payments, the authorities believe it will be harder for importers to manipulate invoice values. This mirrors the existing setup where banks act as tax agents for payments made through foreign credit cards.
The Federal Board of Revenue (FBR) has already presented the plan to the International Monetary Fund (IMF), as part of Pakistan’s broader commitment to raise tax revenues beyond Rs. 14 trillion in FY26. While the IMF has yet to formally approve the measure, it is considered essential for meeting budgetary targets.
In parallel, the FBR is developing a multi-point tax collection approach, focusing on the stages of shipment, arrival of goods, and payment remittances. Officials believe this strategy could boost compliance and plug revenue leakages in cross-border trade.
Meanwhile, the government continues to depend heavily on indirect taxation. A recent example is the 20 percent federal excise duty imposed on packaged juices last year, alongside an 18 percent general sales tax. The resulting price increase led to a sharp 45 percent drop in sales. The juice industry has since requested a reduction in the excise duty to 15 percent in the upcoming budget.
As budget consultations intensify, the government appears to be balancing between revenue generation goals and pressure from affected industries, all under the watchful eye of the IMF.
