FPCCI calls for major tax overhaul in budget 2026–27, seeks cuts in corporate and income rates

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has submitted its budget proposals for fiscal year 2026–27, calling for sweeping reforms in taxation structure aimed at easing compliance, improving liquidity and supporting investment.

FPCCI’s proposals place early emphasis on exporter taxation, recommending reinstatement of the Final Tax Regime as a full and final liability. It also suggested giving exporters the option to choose between the Final Tax Regime and the Normal Tax Regime, with rates to be finalised in consultation with stakeholders.

On the technology sector, the chamber noted that IT and IT-enabled exports currently stand at USD 3.8 billion, with potential to rise to USD 10 billion. It proposed maintaining the 0.25 percent tax rate on IT exports until 2035 to ensure predictability and policy continuity.

For small and medium enterprises, FPCCI recommended raising the turnover threshold from Rs250 million to at least Rs500 million, citing a 366 percent depreciation of the rupee since 2007. It further suggested indexing the threshold to inflation through the Consumer Price Index.

In the industrial sector, the body urged a reduction in the manufacturing tax rate from 29 percent to 20 percent, arguing that the existing combined burden of up to 36 percent, including WWF and WPPF, is constraining investment, modernisation and foreign direct investment.

FPCCI also pressed for major changes to the Super Tax framework. It recommended instalment-based recovery without default surcharge under Section 4B, while calling for the complete abolition of Super Tax under Section 4C, or at minimum a significant reduction for manufacturing to support growth and reduce capital flight.

For salaried individuals, the chamber proposed lowering the top income tax rate from 35 percent to 30 percent and removing or reducing the 9 percent surcharge. It also suggested increasing the non-taxable income limit from Rs600,000 to Rs1.2 million, along with introducing tax credits for education and healthcare expenses.

On compliance procedures, FPCCI recommended discontinuing annual withholding tax statements, arguing that quarterly filings already contain the same data. It proposed that PRAL automatically consolidate quarterly returns into a single editable digital statement.

The chamber further stated that taxpayers should not be penalised in cases where tax is deducted but not deposited by withholding agents.

It also called for rationalisation of withholding tax rates under Sections 148, 153, 236G and 236H, describing them as advance taxes that restrict working capital and generate refund delays. FPCCI recommended that such deductions not be treated as minimum tax.

Finally, FPCCI proposed revising withholding thresholds, suggesting an increase from Rs75,000 to Rs250,000 for goods and from Rs30,000 to Rs150,000 for services, citing inflation and currency depreciation.