OICCI welcomes Pakistan budget but warns tax burden falls on formal sector

OICCI has welcomed Pakistan's federal budget for fiscal year 2026-27, calling it a restrained plan with "some structural ambition," but warned that the formal sector continues to bear a disproportionate share of the country's tax burden.

The Karachi-based chamber issued its assessment on Thursday, acknowledging the difficult fiscal environment shaped by IMF commitments and years of consolidation.

What does OICCI say about Pakistan's budget 2026-27?

OICCI describes the budget as fiscally cautious but not without merit. The chamber acknowledges the Federal Board of Revenue's PKR13 trillion collection milestone, welcomes partial super tax relief, and praises structural reforms like the National Faceless Assessment Centre.

Its central concern is that revenue continues to flow from compliant businesses and salaried taxpayers rather than the broader economy.

Why is OICCI concerned about Pakistan's informal economy?

The chamber flagged the expansion of Pakistan's cash economy from PKR9 trillion to PKR12 trillion this year, a 33% increase, as evidence that economic formalization has stalled.

OICCI described the rise not as an anomaly but as a measurable policy failure. The informal economy's continued growth shifts the tax burden further onto businesses already operating within the formal system.

What tax measures did OICCI welcome in the budget?

OICCI praised the government's decision to abolish the super tax for income slabs between PKR150 million and PKR500 million and reduce the rate from 10% to 8% for income above that threshold.

The chamber said the changes would ease pressure on mid-sized formal enterprises and aligned with its long-standing recommendations. It also welcomed the reduction in withholding and advance tax on export proceeds from 2% to 1.25%.

Additional relief in the real estate sector, with advance tax rates under Sections 236C and 236K reduced to flat rates of 2.75% and 1.5% respectively, was also welcomed. OICCI said targeted relief for the IT sector and selected input categories were positive steps. The core corporate income tax rate, however, remained unchanged, and the chamber said it would seek further clarity through the Finance Bill.

What structural reforms did OICCI highlight?

OICCI described the proposed National Faceless Assessment Centre and a system-based tax assessment regime as among the most significant structural reforms in the budget.

The chamber said the initiative could reduce direct contact between taxpayers and officials, limit discretionary powers, and lower the risk of harassment for compliant businesses. It cautioned that implementation would ultimately determine whether the reform delivers.

What are OICCI's two main concerns with the budget?

The chamber raised two specific omissions. First, the budget did not restore sales tax status or introduce zero-rating for oil refineries and oil marketing companies, a gap OICCI said is delaying potential refinery expansion investments worth between $6 billion and $10 billion.

Second, the budget left unaddressed the Minimum Tax on Turnover under Section 113 and the Alternate Minimum Tax under Section 153 of Pakistan's Income Tax Ordinance, 2001.

OICCI said both provisions tax turnover rather than profit, distorting the burden on low-margin businesses. The chamber also urged the government to establish a clear, time-bound refund mechanism through the Finance Bill, saying pending corporate income tax and sales tax refunds continue to create liquidity challenges for the formal sector.