PBC raises concerns over FBR powers, says budget punishes formal sector

KARACHI: The Pakistan Business Council (PBC) has strongly criticised the government’s proposed Finance Bill 2025, warning that the new tax measures, especially the sweeping powers being granted to the Federal Board of Revenue (FBR), risk undermining investor confidence and punishing the formal sector already bearing the brunt of the tax burden.

In a scathing statement posted on social media on Sunday, the PBC said the formal sector played a key role in helping Pakistan secure its current IMF programme by paying a large share of taxes in the FY24/25 budget -- a move it called both strategic and a national duty..

Despite this contribution, the council noted, its call for a roadmap to gradually reduce taxes in the next fiscal year has been denied. More alarmingly, it said, the budget fails to address critical support needed for exporters amid mounting global uncertainty, particularly in light of recent US tariffs where Pakistan stands to face the reciprocal tariffs of 29 per cent.

The PBC expressed “alarm” over a series of provisions in the Finance Bill that would grant the FBR what it called “dangerous and excessive powers”. These include tax assessments based on suspicion (Section 11E), arbitrary seizure of property (Section 14AE), and up to 10-year prison sentences and Rs10 million fines for broadly defined tax fraud (Section 33), which the council fears could capture routine business errors.

A big concern for the PBC is the authority given to the FBR to arrest individuals without warrant (Section 37AA), detain them for up to 14 days (Section 37B), and override confidentiality protections between taxpayers and their advisers (Section 58C).

“These powers make no distinction between the compliant formal sector and the informal economy,” the PBC said, warning that such measures would worsen the country’s already poor investment climate. While industry accounts for only 18 per cent of GDP, it contributes 60 per cent of total taxes, with banks also playing a major role, the council added.

The PBC, which describes itself as one of the first business bodies to submit strategic proposals ahead of the budget, said it had advocated for broadening the tax base by formalising more of the economy, boosting exports, and reducing import dependency.

“Instead,” the statement concluded, “we are disappointed that the proposed FBR powers will do the exact opposite of encouraging investment.”

Last week, however, FBR Chairperson Rashid Mahmoud Langrial defended the proposed changes in the Finance Bill, arguing that tax authorities around the world -- including in India and Bangladesh -- have powers to arrest individuals for tax fraud. He highlighted that the country’s top 5.0 per cent of wealthy households evade an estimated Rs1.6 trillion in taxes. Citing workforce data, he said the country has 67 million workers, and of that, the top 1.0 per cent alone is responsible for Rs1.233 trillion in evasion, while the remaining 95 per cent account for only Rs0.14 trillion.