Karachi, April 23, 2025 – The Karachi Chamber of Commerce and Industry (KCCI) has recommended a critical reform in the country’s tax structure by suggesting changes to the existing definition of a withholding agent.
In its detailed proposals submitted for the Federal Budget 2025-26, the KCCI emphasized that a redefinition is necessary to support small businesses and encourage economic formalization.
The current tax law, specifically Clause 7 of Section 153 of the Income Tax Ordinance, 2001, outlines the categories of persons and transactions liable to deduct withholding tax on payments related to goods, services, and contracts. According to sub-clauses (h) and (i), individuals and associations of persons (AOPs) with an annual turnover of Rs. 100 million or more in any of the preceding tax years are designated as withholding agents.
The KCCI argued that including such entities within the scope of withholding obligations creates undue administrative and financial pressures. They contend that this approach discourages business expansion and the transition of enterprises into private limited companies due to the added compliance costs and regulatory hurdles.
To address these issues, the KCCI has proposed the deletion of sub-clauses (h) and (i) from Clause 7 of Section 153. The chamber maintains that the current definition of a withholding agent is overly broad and unnecessarily burdens small and medium-sized businesses, many of which lack the capacity to handle the complexities of withholding tax compliance.
The KCCI further clarified that individuals and AOPs meeting the Rs. 100 million turnover threshold are generally not subject to several other transaction-based taxes. As such, enforcing withholding tax on them under Section 153 serves little purpose and restricts the overall growth and formalization of the economy.
Reforming the withholding agent definition, the KCCI emphasized, will simplify tax procedures, reduce compliance burdens, and ultimately encourage more businesses to enter the formal sector. The KCCI continues to advocate for a more practical, growth-oriented tax regime aligned with the realities of business operations in Pakistan.