Karachi, June 17, 2025 – In a hard-hitting critique of prolonged economic dependency of Pakistan, President of the Karachi Tax Bar Association (KTBA), Ali A. Rahim, issued a powerful warning regarding the country’s dangerous over-reliance on the International Monetary Fund (IMF).
Speaking at KTBA’s post-budget 2025-26 seminar, Rahim lamented that Pakistan has entered IMF programs 24 times since its creation. “Each of these arrangements averages three years, meaning Pakistan has spent 72 out of its 77 years under IMF supervision. This is a national crisis,” he said.
He emphasized that the nation’s repeated appeals to international lenders have led to increasingly harsh and burdensome conditions. “With every new agreement, Pakistan is subjected to tougher terms, making it progressively harder to meet the requirements. The sovereignty of our economic policy is at stake,” Rahim warned.
He criticized the government’s fiscal expansion despite warnings from lending institutions. “Talks of a surgical audit by IMF and World Bank should have served as a wake-up call. Instead, we’ve witnessed ballooning government expenditures and the introduction of draconian laws designed purely for tax collection, not reform.”
One such law, enacted on May 2, 2025, allows authorities to recover taxes even when there are stay orders from the High Courts or the Supreme Court. Rahim denounced this move as an attack on constitutional protections and judicial authority.
Nevertheless, the KTBA president acknowledged a rare positive step: the government’s recent push to tax agricultural income through provincial legislation. “Agriculture contributes over 20% to Pakistan’s GDP yet accounts for a meager 1% in tax revenues. If implemented earnestly, this reform could drastically improve revenue collection and help reduce dependence on the IMF,” he added.
Rahim concluded that such reforms could allow Pakistan to reallocate funds from the National Finance Commission (NFC) award, thereby enhancing federal development initiatives. However, he cautioned that the window for action is closing fast. KTBA has called for a complete overhaul of economic priorities to break the cycle of debt and foreign dependency that has entrapped Pakistan for decades.
As we all know, Pakistan’s population is expanding at an alarming rate—over 2% annually. If this growing demographic is not strategically absorbed into the economic fabric, the burden on national resources will become unsustainable. The only viable solution lies in aggressive and widespread industrialization. Only a robust industrial base can generate the volume of employment required to accommodate this population surge.
This is not merely an economic need—it is a national imperative. Failure to act decisively will exacerbate social inequalities and deepen the poverty crisis. To illustrate the gravity of the situation, it is distressing to note that just this year alone, 10 million more Pakistanis have fallen below the poverty line. Without fundamental structural reforms, this trend is set to worsen.
A particularly noteworthy development in the 2025-26 budget is the introduction of new taxation measures targeting online marketplaces and digital entities. While this move is a step in the right direction—aimed at expanding Pakistan’s narrow tax base—it still suffers from critical implementation flaws. The policy does not fully reflect the operational realities of digital business models, nor does it align with international best practices. Without refinement, its effectiveness and compliance rates will remain limited.
In a more encouraging move, the revival of the two-tier tax appeal system marks a return to institutional stability and legal due process. The single-tier model, recently introduced, proved inefficient and eroded taxpayer confidence. Restoring the two-tier system is a welcome correction and will likely re-establish trust in the fairness of the appellate mechanism.
INCOME TAX
The proposed omission of the provisos to Section 122(9) of the Income Tax Ordinance, 2001, which previously mandated a firm timeline—180 days plus an extension of 90 days (totaling 270 days)—for concluding proceedings after issuing a show cause notice (SCN), is an alarming and regressive measure. This removal fundamentally undermines legal certainty, procedural fairness, and efficiency in Pakistan’s tax adjudication framework.
Clear timelines are the bedrock of a just tax system. They prevent prolonged, arbitrary proceedings that burden taxpayers and open the door to harassment. The decision to abolish this statutory safeguard represents a serious step backward, eroding the fragile trust between taxpayers and the state. It is a recipe for administrative chaos and unchecked power, which could lead to indefinite, unresolved cases.
Globally, jurisdictions maintain time-bound mechanisms to balance tax enforcement with taxpayer protections. Yet, Pakistan now risks standing in stark contrast to international norms. Removing such timelines signals a disregard for rule-based governance and opens the floodgates for subjective, delayed, and even politically motivated decisions.
The KTBA, in its pre-budget recommendations, rightly advocated for the extension of similar timelines to Section 161 (withholding tax recovery) where procedural delays are notoriously excessive. Ignoring this sound advice is a missed opportunity for harmonization and reform.
Ironically, the Finance Bill, 2025 increases the time for assessments under the Sales Tax Act from 120 to 180 days under Section 11G—indicating that when it suits the administration, time limits are tightened, yet where taxpayer protection is at stake, they are scrapped.
KTBA strongly urges the restoration of the original timelines in Section 122(9) and demands similar protections under Section 161 to uphold taxpayer rights and procedural discipline.
SALES TAX
Equally disturbing is the new authority granted to Assistant Commissioners Inland Revenue to arrest individuals under the Sales Tax Act. These officers often lack the requisite training or experience in complex sales tax matters. This move is not just premature—it is dangerous.
Arrest powers must not be delegated so loosely. At a minimum, they should lie with officers not below the rank of Additional Commissioner (Headquarters), and only upon written approval from the Commissioner Inland Revenue. The current proposal opens the door for misuse, particularly amid growing incidents of data leaks, tax fraud, and taxpayer victimization.
The insertion of Section 37AA—allowing Inland Revenue officers to arrest without Commissioner approval—while Sections 37A, 37B, and 37C already exist, is not only redundant but threatens to create institutional chaos. This duplication will fuel taxpayer harassment, erode business confidence, and increase litigation.
Section 37A must be amended to ensure that the power to authorize arrests rests solely with the Chief Commissioner Inland Revenue, not the Board. Moreover, only senior officers should be permitted to exercise these powers, with full accountability and transparency.
This overreach has already drawn strong criticism in the Senate of Pakistan, being labeled as arbitrary and susceptible to abuse. Importantly, such provisions are not revenue measures and do not require IMF approval—so why pursue them?
SALES TAX ON SERVICES
A significant change—driven by guidance from international donor agencies—is the shift in how provincial sales tax on services is structured. Provinces like Sindh are now transitioning from taxing specifically listed services to taxing all services by default, except those explicitly exempted. While the standard rate in Sindh remains at 15%, and most existing exemptions continue, this represents a major broadening of scope and must be implemented with caution to avoid disrupting service sectors already under strain.
CUSTOMS
On a more encouraging note, the rationalization of customs tariff rates reflects a welcome move toward trade facilitation. It indicates a rare understanding of economic realities and may help enhance Pakistan’s competitiveness.
However, the Finance Bill’s silence on internal accountability within tax departments is troubling. While taxpayers are subject to tightening scrutiny, the absence of internal checks on tax authorities only breeds inefficiency and distrust.
These are just a few of the pressing concerns we must unpack in detail. I look forward to a productive and transparent dialogue with all participants in today’s session.
At the seminar, Zubair Bilal Chief Commissioner, Large Taxpayer Office, Karachi was chief guest. Abdul Qadir Memon, Chairman Pakistan Tax Bar Association Academy of Taxation, Anwar Kashif Mumtaz President Pakistan Tax Bar Association, Abid Shaban, Haider Ali Patel, Adnan Mufti, Muhammad Raza were also present on the occasion.
Haider Patel and Adnan Mufti explained the amendments through Finance Bill, 2025 in their presentations.