Karachi, June 9, 2025 – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has made a strong appeal to the government to abolish the “further tax” imposed under the Sales Tax Act in the upcoming federal budget for 2025–26.
In its detailed budget proposals, FPCCI criticized the reintroduction of the further tax through Subsection (1A) of Section 3 of the Sales Tax Act, 1990. Initially imposed in 2013, the further tax has now surged to a burdensome 4% as of 2023. The primary justification for the further tax was to compel businesses to avoid transacting with unregistered persons. However, FPCCI argues this goal has not been achieved. Instead, it claims, the measure has triggered widespread distortions in the economy and tax system.
According to the FPCCI, the further tax has created multiple problems. Firstly, when added to the standard 18% general sales tax (GST), the combined 22% tax burden becomes unbearable for many businesses. Rather than encouraging compliance, it drives more entities into the informal economy and dissuades tax registration.
Secondly, FPCCI noted that many unregistered buyers refuse to bear the cost of the further tax, which forces registered suppliers to absorb the cost themselves—leading to increased financial pressure and discouraging formal transactions.
A more alarming consequence, according to FPCCI, is the rise in fake or “flying invoices,” where suppliers falsely claim to have sold goods to registered buyers to avoid further tax. This results in the misuse of input tax credits and causes direct revenue losses to the government, including the full 18% GST.
Furthermore, in a bid to escape the additional burden, some suppliers under-declare the value of their sales, resulting in under-reported revenue and tax leakage. FPCCI emphasized that rather than generating any meaningful additional revenue, the further tax contributes to evasion and reduces effective tax collection.
The FPCCI has made it clear: abolishing the further tax is crucial to restoring fairness, improving compliance, and encouraging genuine business growth. The organization recommends the Federal Board of Revenue (FBR) focus on using its existing data analytics to identify and register unregistered entities, instead of punishing compliant businesses through further tax.