Pakistan Mulls Tax Reforms: Ending Import Exemptions and Introducing Withholding Tax

Pakistan’s upcoming budget for the 2024-25 fiscal year may bring significant changes to import tax policies. The government is considering abolishing tax exemptions currently enjoyed by importers and introducing a withholding tax on imported goods.

Goodbye Exemptions, Hello Withholding Tax

The current system exempts imports from a uniform 5.5% withholding tax due to advance taxes already paid. The proposed changes would eliminate this exemption, imposing a new 1% withholding tax on all purchases from commercial importers.

This reform aims to streamline tax collection, broaden the tax base, and increase revenue for the government. It’s estimated to generate Rs 20 billion in the next fiscal year.

Balancing Revenue and Business

While the government seeks to improve tax compliance and revenue, these changes could impact businesses and consumers. Importers facing higher tax burdens might raise the cost of imported goods, potentially leading to inflation.

However, the government proposes a reduced withholding rate (1-4%) on supplies made by importers to balance tax collection with business needs. This aims to incentivize compliance while minimizing burdens on importers and promoting a positive business environment.

Stakes Are High

Stakeholders across various sectors are watching these proposed tax reforms closely. The government’s final decision on import tax exemptions and withholding tax rates will undoubtedly shape Pakistan’s economic landscape and fiscal policies in the coming years.

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