Karachi, May 29, 2025 – In a major policy recommendation ahead of the upcoming federal budget, the Karachi Tax Bar Association (KTBA) has called on the government to introduce zero-rated sales tax for all Non-Profit Organizations (NPOs), particularly those engaged in critical public welfare services like healthcare and education.
In its comprehensive budget proposals for the fiscal year 2025–26, the KTBA highlighted the urgent need to address the financial burden currently placed on NPOs due to the existing sales tax regime. According to the association, supplies made to charitable and non-profit organizations—including hospitals, schools, and welfare institutions—are subject to standard sales tax, which significantly reduces the utility of donations and grants.
To rectify this, the KTBA has proposed the insertion of a new entry in the Fifth Schedule of the Sales Tax Act, 1990, which would read:
“Imports and Supplies to a Non-Profit Organization as approved under Section 2(36) of the Income Tax Ordinance, 2001.”
This measure, the KTBA argues, would align the Sales Tax Act with the Income Tax Ordinance, where a clear definition and treatment of NPOs already exists.
The tax bar association emphasized that charitable institutions such as hospitals and schools are providing essential public services, often relying on donor funding. However, these institutions are currently forced to redirect a portion of their donations to cover sales tax expenses—undermining their ability to deliver social impact. This taxation model, KTBA pointed out, contradicts international agreements signed by Pakistan with foreign states and global donor agencies, many of which require that aid is not consumed by domestic taxation.
By extending zero-rating to all legitimate NPOs, the KTBA asserts that the government can empower such organizations to utilize their financial resources more effectively and transparently, without being hampered by tax-related overheads.
The KTBA reiterated that enabling a tax-free environment for recognized NPOs will not only bolster public welfare but also attract more donations, both local and international, thereby reinforcing Pakistan’s social development framework.