Karachi, March 6, 2025 – The Karachi Chamber of Commerce and Industry (KCCI) has voiced serious concerns regarding the fairness and legality of tax enforcement actions targeting the textile sector.
In a formal letter addressed to the Chief Commissioner Inland Revenue (CCIR) of the Corporate Tax Office (CTO) Karachi, KCCI highlighted the growing distress among textile exporters over unjustified tax measures imposed by senior tax officers.
KCCI has been inundated with complaints from textile businesses in Karachi regarding arbitrary and allegedly unlawful actions taken against them. Many textile firms have reported instances of harassment linked to pre-suspension notices issued by the tax office. These notices have frequently led to the suspension or blocklisting of businesses based solely on alleged issues with certain registered suppliers in their chain. However, investigations reveal that these suppliers were legitimate and active at the time of transactions, making the subsequent punitive actions against textile exporters both unjustified and legally questionable.
One of the primary concerns raised by KCCI is the flawed basis for these tax enforcement actions. Many affected taxpayers belong to the textile export industry, where supplies are classified as zero-rated under the existing tax laws. Consequently, allegations regarding the issuance of fraudulent or “flying” invoices are entirely misplaced, as textile exports fall outside the scope of such accusations.
Furthermore, the crux of these tax claims revolves around issues within the supply chain rather than the textile exporters themselves. Legal principles dictate that any scrutiny should focus on the suppliers identified as problematic rather than penalizing the purchasers, who conducted transactions in good faith. The Supreme Court of Pakistan has also ruled against disallowing input tax deductions for purchases from suppliers classified as active at the time of transaction. This legal precedent further underscores the overreach of tax enforcement measures by the CTO Karachi.
Section 21 of the Sales Tax Act is designed to address exceptional cases of fraud; however, KCCI has observed that tax officials are misusing this provision to exert undue pressure on reputable textile exporters. The intent appears to be more aligned with meeting arbitrary revenue targets rather than ensuring fair taxation. If there are claims of inadmissible input tax or non-payment of sales tax, Section 11 of the Sales Tax Act (STA) 1990 provides a legal mechanism for redressal. Unfortunately, these due processes are being systematically ignored by the tax office.
Reports indicate that certain tax officers are coercing legitimate textile exporters into making payments for alleged tax liabilities under the threat of suspension. This contradicts legal provisions that require tax recovery to be pursued from defaulting suppliers rather than buyers. Such an approach not only violates established laws but also imposes an unfair financial burden on the textile sector.
Despite reassurances from the Federal Board of Revenue (FBR) that no action would be taken when unpaid input tax amounts to less than 5% of total turnover, KCCI has found that this assurance is not being honored. This selective and arbitrary enforcement raises further concerns about the intent behind these measures.
Unlike other tax offices across Karachi and Pakistan, the CTO Karachi appears to be disproportionately targeting textile exporters, raising suspicions of discriminatory treatment. Additionally, many notices issued by the tax office lack transparency, preventing textile businesses from adequately assessing the claims made against them. In multiple cases, suppliers flagged as problematic remain active, and in some instances, the tax claims imposed on purchasers exceed the actual liability of those suppliers.
KCCI firmly believes that such unjust actions pose a significant threat to Pakistan’s textile export industry. Given Karachi’s status as a crucial hub for textile exports, these measures could severely impact both businesses and the overall economy. The Chamber, therefore, demands an immediate and thorough investigation into the practices of the CTO Karachi and urges authorities to share a comprehensive list of suspension notices issued from November 1, 2024, to the present date. Additionally, KCCI calls for full disclosure of recoveries made and actions taken against defaulting suppliers.
Restoring fairness and transparency to tax enforcement is critical for ensuring that textile exporters can operate without fear of undue harassment. KCCI remains committed to advocating for the rights of textile businesses and calls on relevant authorities to rectify these unjustified practices at the earliest possible opportunity.