Tax bar says punitive withholding taxes have become a revenue tool instead of improving documentation and compliance
The Karachi Tax Bar Association (KTBA) has urged the Federal Board of Revenue (FBR) to abolish higher withholding tax rates imposed on non-filers and instead strengthen targeted enforcement measures to expand the tax net.
In its budget proposals for 2026–27, the KTBA said the Tenth Schedule of the Income Tax Ordinance, 2001 — which imposes higher withholding taxes on non-filers — was originally introduced to identify individuals and businesses operating outside the documented economy.
The association said the FBR had likely gathered sufficient taxpayer data over the years through the schedule and that continuing with elevated withholding tax rates was now proving counterproductive.
According to the KTBA, the provisions have gradually evolved into a revenue-generation mechanism rather than fulfilling their intended objective of improving tax compliance and documentation.
The tax body recommended that the FBR phase out or completely abolish the Tenth Schedule and adopt more effective enforcement tools to broaden the tax base.
It proposed that tax authorities focus on digitisation, risk-based audit systems and stronger enforcement mechanisms to identify and pursue non-filers.
The association stressed that the FBR should actively bring undocumented individuals and businesses into the formal economy instead of relying on excessive withholding taxes.
The KTBA warned that the continuation of higher tax rates could discourage economic activity and place additional burden on documented taxpayers while many potential taxpayers remain outside the formal tax system.
It further said that data-driven compliance measures and technology-based monitoring would provide a more sustainable path for long-term revenue growth than punitive taxation policies.
The recommendations form part of the KTBA’s broader proposals for the federal budget 2026–27 aimed at improving tax administration, enhancing compliance and creating a more business-friendly taxation framework in Pakistan.
