Key Points
- FTR would treat tax deducted at source as full and final liability
- Aim is to simplify compliance and reduce tax disputes
- Recommendation still requires approval through budget legislation
ISLAMABAD: A parliamentary panel of the Senate of Pakistan has recommended bringing exporters under a Final Tax Regime (FTR) as part of ongoing budget 2026-27 discussions, a proposal that could reshape how export income is taxed in the country.
The recommendation, discussed during meetings of the Senate Standing Committee on Finance, seeks to replace parts of the current taxation structure for exporters with a Final Tax Regime.
It is a system in which tax collected at the time of a transaction is treated as the complete and final tax liability.
Under such a regime, exporters would typically not be required to file additional tax payments on the same income, as the deduction or withholding at source is considered to settle their obligation in full.
This is designed to reduce the need for extensive assessments, audits, and refund claims that often arise under standard income tax systems.
Supporters of the proposal argue that the Final Tax Regime could bring greater predictability to export earnings and reduce administrative burdens.
It would also improve compliance by simplifying how tax obligations are calculated and collected.
The regime is expected to limit disputes between taxpayers and revenue authorities by clearly defining liability at the point of transaction.
The recommendation comes as part of overall budget 2026-27 deliberations, where policymakers are attempting to balance export competitiveness with the need for fiscal consolidation.
Any change to the export tax framework would require incorporation into the Finance Bill and subsequent parliamentary approval.
In Pakistan’s tax system, the Final Tax Regime has historically been used in selected sectors as a simplified mechanism where withholding tax is treated as the final settlement of liability.
In contrast, in the Normal Tax Regime, taxpayers calculate total income and adjust tax credits, refunds, or additional liabilities accordingly.
If adopted for exporters, the shift could significantly alter compliance procedures, documentation requirements, and refund flows within one of Pakistan’s key foreign exchange earning sectors.
The committee met with Saleem Mandviwalla in the chair, which continued deliberations on the Finance Bill 2026-27, reviewing a wide range of fiscal, trade, industrial and taxation matters aimed at strengthening economic growth, supporting exports and addressing public concerns.
Muhammad Jawed Bilwani, Chief Coordinator, All Pakistan Exporters Associations, while briefing the committee, said that the restoration of the FTR and adoption of a competitive export taxation framework can realistically enable the export sector to achieve at least 20% growth.
According to the Association, it would also result in an additional $6.4 billion in export earnings and increase total exports to approximately $38.4 billion.
He said that in an increasingly competitive global environment, exporters require policy stability, liquidity support, and a taxation framework that promotes expansion rather than constraining growth.
Bilwani added that the current regime creates several negative consequences.
These include blockage of working capital; increased dependence on costly bank financing; higher cost of doing business; delays in export expansion and modernisation plans; reduced competitiveness in international markets; increased administrative burden on both taxpayers and the Federal Board of Revenue; and accumulation of refund backlogs amounting to around Rs400 billion.
The committee was further informed that exporting sectors are facing serious challenges, primarily due to the shift from the Final Tax Regime (FTR) 1 per cent to the Normal Tax Regime (NTR) (1 per cent Minimum + 1 per cent advance tax= 2 per cent) and the continuation of withholding and advance tax deductions on export realisation.
This has exposed exporters to additional liquidity burden, tax complexities, excessive compliance requirements, notices and audits, administrative harassment and unnecessary litigation.
