Karachi, May 6, 2025 – The Karachi Tax Bar Association (KTBA) has formally recommended that the Federal Board of Revenue (FBR) reorient its tax policy strategy by prioritizing the enforcement of tax return filing rather than relying heavily on collecting higher taxes from non-filers.
This recommendation was made as part of KTBA’s proposals for the federal budget 2025–26.
In its detailed submission, the KTBA called for the abolition of the Tenth Schedule of the Income Tax Ordinance, 2001. This particular schedule allows for elevated rates of withholding taxes on individuals and entities not appearing on the active taxpayers list. The KTBA emphasized that the original intent of this schedule was to serve as a mechanism to identify and track potential taxpayers who were outside the formal tax system.
According to the KTBA, the FBR has now amassed a substantial database of non-filers through this mechanism. In light of this development, the KTBA argued that the continuation of the Tenth Schedule—despite its punitive nature—no longer serves its intended purpose and instead places an undue burden on the economy. “What was once a tracking mechanism has now turned into a revenue-generation tool, which contradicts the spirit in which the schedule was introduced,” the KTBA noted.
The association urged the FBR to adopt a more strategic and long-term approach to broadening the tax base. This includes leveraging digitization, utilizing data analytics for risk-based audits, and strengthening legal enforcement to bring non-filers into the tax net. The KTBA believes such reforms would create a more equitable system and improve voluntary compliance in the long run.
The KTBA also expressed concerns that the current reliance on high withholding tax rates has created distortions in the tax system, leading to a situation where non-filers prefer to pay extra rather than becoming compliant. This, they argue, defeats the entire purpose of tax base expansion.
To remedy this, the KTBA has proposed that the FBR now actively pursue non-filers through targeted enforcement rather than passive revenue collection via higher rates. The association concluded that by moving away from short-term revenue goals, the FBR can lay the foundation for a fairer and more sustainable tax regime that promotes compliance through accountability and modernization.