Tax bar association calls for super tax abolition, real estate relief in budget proposals

The Karachi Tax Bar Association (KTBA) has urged the federal government to abolish the super tax, reduce withholding taxes on the real estate sector, increase the exemption threshold, and lower the tax rate on salaries to expand the tax base and increase the number of taxpayers in the 2025-26 fiscal year.

In its Federal Budget Proposals for 2025-26, the KTBA noted that no deductions are currently allowed against salary income. It recommended raising the annual exemption threshold from PKR 600,000 to PKR 1,200,000, citing misalignment with inflation over the past few years.

Additionally, the association proposed a 15% deductible allowance for employees to cover commuting and unavoidable work-related expenses, similar to deductions permitted on rental income.

The KTBA also suggested gradually reducing the top tax rate for salaried individuals from 35% to 25%.

Real Estate Sector Relief

The association criticized the high withholding tax rates under Sections 236C and 236K on property transactions, calling them a deterrent to real estate activity. While these taxes were initially introduced for data collection, the Federal Board of Revenue (FBR) has now gathered sufficient information.

"Continuing these taxes primarily for revenue generation places undue pressure on a sector already facing significant challenges," the KTBA stated. It urged drastic rate reductions to stimulate activity.

The association also recommended restricting non-filers' transactions instead of increasing withholding taxes on them, provided appropriate exclusions are clearly defined.

Corporate Tax Reduction

The KTBA proposed lowering Pakistan’s corporate tax rate, which currently stands at 29% but rises to 36% after Workers’ Welfare Fund (WWF) and Workers’ Profit Participation Fund (WPPF) contributions—higher than the Asian average.

It suggested gradually reducing the corporate rate to 25% by cutting it 1% annually. For small companies, the rate should be lowered to 15%, as high taxes encourage tax evasion and discourage economic documentation and foreign investment.

Capital Value Tax and Tax Credits

The KTBA opposed the Capital Value Tax on foreign assets, arguing it discourages disclosure and may lead to tax evasion. It recommended abolishing or significantly reducing the tax to promote transparency.

The association also called for reinstating tax credits for investments in shares, mutual funds, sukuk, life insurance, and health insurance, which were removed in the Finance Act, 2022. These incentives are crucial for salaried individuals and small investors, as well as for boosting the capital market.

Sales Tax Incentives

To encourage economic documentation, the KTBA proposed reintroducing a 3% tax credit for manufacturers with 90% sales to sales tax-registered entities—a benefit scrapped in the Finance Act, 2017. It also suggested extending this credit to businesses making 90% purchases from registered suppliers.

Industrial Investment Incentives

The KTBA recommended reviving tax credits under Sections 65B, 65D, and 65E for investments in new and existing industrial undertakings, with deadlines extended to June 30, 2027, to promote industrialization.

Minimum Turnover Tax Reduction

The association called the current 1.25% minimum turnover tax on companies excessive and proposed:

- Abolishing it for listed companies (which face strict audits).

- Reducing it to 0.75% for other companies.

The KTBA urged the government to eliminate the 1% advance tax on exporters, arguing it creates an unnecessary financial burden. Since exporters already comply with Section 147, any additional tax liability can be voluntarily paid, making the extra levy redundant.