Removing administrative roadblocks from Pakistan’s tax system—II

9- Time-Bound Certificates for Share Transfers Involving Non-Residents

Problem

Transfers of shares involving non-residents require tax clearance certificates before State Bank approvals can be completed. Many applications remain pending due to uncertainty regarding domestic law and treaty implications.

Proposal

A standardised and time-bound procedure should be introduced for issuance of the relevant tax clearance certificate.

READ MORE: Removing administrative roadblocks from Pakistan’s tax system-I

Applications not decided within the prescribed period should be deemed approved.

10. Harmonisation of provincial sales tax on services

Problem

Different provincial sales tax regimes, overlapping jurisdictional claims and separate compliance systems create substantial uncertainty and compliance costs for service-sector businesses. Taxpayers frequently face multiple audits, registrations and reporting requirements.

Proposal

The provinces should adopt common place-of-supply, allocation and audit rules and establish an integrated national platform for registration, reporting and administration of sales tax on services.

11. Withdrawal of Section 8B of the Sales Tax Act

Problem

Section 8B restricts adjustment of input tax to a prescribed percentage of output tax liability, resulting in blockage of genuine input tax credits and accumulation of refunds. The provision was introduced when sales tax administration was largely manual.

Today, sales and purchase transactions are substantially automated and electronically verified through the sales tax system.

Proposal

Section 8B should be withdrawn and taxpayers should be allowed full adjustment of genuine input tax reflected in the automated system, subject to existing audit and enforcement powers.

12. Preventing the gradual conversion of tax law into criminal law

Problem

Penalty, prosecution and anti-money laundering provisions are increasingly invoked before the underlying tax liability has been determined through the assessment process. Taxpayers may therefore face criminal consequences based on reporting differences, omissions or interpretational disputes even before any tax loss has been established.

This trend risks transforming ordinary tax administration into criminal enforcement and undermines confidence amongst documented taxpayers.

Proposal

Except in cases involving clear fraud or independently established criminal conduct, prosecution proceedings and tax-related predicate offences should only be initiated after completion of the assessment process, determination of actual tax liability and establishment of tax loss arising from willful tax evasion.

13. Transparency in tax collections, refunds and customs valuation

Problem

Taxpayers currently have limited visibility regarding the composition of tax collections, the size of the refund backlog and the status of individual refund claims. Consequently, it is difficult to determine whether higher collections are being generated through expansion of the tax base or merely through increased collection from existing taxpayers.

Similarly, limited disclosure regarding customs values and import/export prices reduces transparency and increases the risk of under-declarations and valuation disputes.

Proposal

FBR should publish monthly data showing:

• Income tax and sales tax collections from existing taxpayers and taxpayers added during the last three years;

• Number of new taxpayers added to the tax net;

• Total refund claims filed, processed and pending;

• Age-wise analysis of pending refunds;

• Refund orders issued and refunds paid.

To improve transparency, the law should permit publication of refund claims and refund orders by taxpayer name, claim reference number, filing date, amount claimed, status and queue position so that taxpayers may independently assess whether refunds are being processed fairly and consistently.

Customs authorities should also publish commodity-wise average import and export prices together with valuation benchmarks and declared values to improve transparency, deter under-declaration and strengthen confidence in the customs valuation process.

14. Floating advance tax rate for property transactions

Problem

Advance tax on the purchase and sale of immovable property is charged on the declared transaction value. This discourages taxpayers from declaring the actual market value because a higher declared value results in a proportionately higher advance tax liability.

For example, if the FBR value is Rs 100 million and the advance tax rate is 2 percent, the tax payable is Rs 2 million. However, if the actual transaction value of Rs 200 million is declared, the tax increases to Rs 4 million, effectively penalising the taxpayer for declaring the true value.

Proposal

A floating advance tax rate should be introduced so that the tax rate automatically decreases where the declared transaction value exceeds the FBR value, while the amount of advance tax payable remains protected.

In the above example, a taxpayer declaring Rs. 200 million should pay advance tax of Rs. 2 million at a reduced rate of 1 percent, instead of Rs. 4 million at 2 percent. This would encourage declaration of actual transaction values without reducing the Government’s existing advance tax collection.—Concluded

Copyright Business Recorder, 2026