FBR Plans Tax on EFS Raw Materials in Budget

Islamabad, May 23 — The Federal Board of Revenue (FBR) is poised to impose a sales tax on imported raw materials used in exported finished goods under the Export Facilitation Scheme (EFS) in the 2025-26 federal budget, a move unveiled by FBR Member Inland Revenue Policy Najeeb Ahmad during the National Assembly Standing Committee on Finance meeting on Thursday, May 22, 2025. This proposal, ignored last year, has resurfaced under intense pressure from the International Monetary Fund (IMF) to standardise tax treatment across sectors, ending exporter exemptions.

Ahmad revealed the IMF’s push to eliminate special tax regimes and reduced rates, arguing, “The Fund demands uniformity in tax policy. Exemptions for exporters are indefensible when other sectors face standard corporate rates.” Aligning with this, the government has already scrapped sales tax zero-rating on local supplies to EFS exporters via the Finance Act 2024, a decision reviewed by the Prime Minister’s Committee on EFS, led by Planning Minister Ahsan Iqbal, with recent recommendations submitted.

Exporters pleaded for the Final Tax Regime (FTR)—a 1% turnover tax—to be reinstated, but the FBR dismissed this, citing IMF objections to sector-specific concessions. The shift to the normal tax regime, imposing corporate tax rates up to 29%, has sparked fierce backlash from the business community. MNA Naveed Qamar condemned the dual tax burden, warning of de facto double taxation with minimum tax provisions. Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Javed Balwani echoed this, highlighting tax burdens of 29% to 45%, a liquidity crunch, and delayed refunds under the FASTER system—often taking months despite a 72-hour promise—driving small and medium exporters out of business. He also noted the withdrawal of Regional Competitive Energy Tariffs (RCET) for power and gas, spiking operational costs.

The upcoming budget looms large for exporters and trade bodies, bracing for fiscal tightening and IMF-driven policy alignment. Web context reveals Pakistan’s export sector’s 60% textile reliance (web ID: 0), while posts found on X show anger—some call it an IMF overreach, others fear export collapse. Critically, the narrative of “standardisation” may mask economic harm—web sources note export growth risks, and X sentiment suggests protests if burdens rise, hinting at potential trade fallout.