EDITORIAL: The nationwide strike call by the country’s major chambers of commerce for July 19, in protest against what they term as anti-business taxation measures introduced in the Finance Act 2025, comes amid warnings of serious economic repercussions if their concerns remain unaddressed.
While similar strike calls in the past by traders stemmed from resistance to documentation and paying their due share in taxes, it is important to note that the principal backers of this particular protest are industrialists — a segment largely already within the tax net. Their concerns, therefore, warrant serious consideration and should not be dismissed outright by the government.
The decision to strike has been prompted by several contentious provisions introduced in the Finance Act, including a Rs200,000 threshold on cash transactions, the wide-ranging powers of arrest granted to FBR officials on allegations of tax fraud, and the mandatory implementation of digital invoicing and e-billing.
Apart from that, the fact that the formal sector continues to be crushed under the burden of relentless hiking of already exorbitant tax and tax withholding rates hasn’t helped matters.
Coupled with minimum taxation on turnover, the ruthless rise in withholding tax rates year after year has eroded the profitability of the industrial sector, undermining investor confidence and leading to a sustained reduction in industry’s contribution to GDP.
The Finance Act 2025’s stipulation of a sharp increase in withholding tax rates for service providers, which includes toll manufacturers in particular, poses a serious threat to the viability of countless businesses, including those in the manufacturing sector that are dependent on these services.
The standard withholding tax rate has now been raised to a substantial 15 percent of turnover — in effect requiring businesses to surrender 15 percent of their total revenue to the government, regardless of profitability. This marks a steep jump from the earlier rates of nine percent for companies and 11 percent for individuals or Associations of Persons, placing an unsustainable burden on the formal economy.
It is clear that those responsible for this and other similarly draconian provisions either lack a basic understanding of how businesses function and the profit margins they operate within, or are simply indifferent to the hardships being inflicted on enterprises.
How many businesses can realistically absorb a 15 percent tax on gross revenue and still stay profitable? Such fiscal overreach has distorted the system, forcing businesses to treat withholding tax as a cost component. The result is predictable: persistent inflation, declining tax compliance and a growing informal sector as firms seek refuge from punitive, extortionate taxation.
Coming to the provisions mandating digital invoicing and restricting cash transactions, these are ostensibly aimed at promoting a documented and cashless economy. However, the authorities appear to have ignored the difficulties of enforcing such significant changes in a market where cash payments remain dominant. It would be advisable for the government to introduce a transitional period before implementing such a fundamental shift so as to ease the associated operational challenges.
It goes without saying that the PML-N government has demonstrated consistent policy bias against industry, while treating other areas of the economy, like the retail and wholesale sectors with kid gloves, a reflection perhaps of the latter’s nuisance value as traders frequently resort to shutter-down strikes to resist documentation and avoid paying their fair share in taxes.
In contrast, the manufacturing sector has limited capacity for such actions, as it cannot absorb the losses caused by production halts.
The unequal treatment highlights the lack of equity in taxation policy, discouraging both: formalisation and long-term investment in industry. It is imperative that the government takes the concerns voiced by industry leaders seriously and engages in meaningful dialogue to ensure that the Finance Act’s provisions are amended where necessary to ensure that they are fair, practical and support sustainable industrial growth.
Copyright Business Recorder, 2025
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