The Senate Standing Committee on Finance and Revenue recommended the inclusion of exporters under the Final Tax Regime and further rationalisation of the tax framework to support export-led growth and enhance foreign exchange earnings.
The development comes as 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, resulting in an additional $6.4 billion in export earnings and increasing 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, like 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% to the Normal Tax Regime (NTR) (1% Minimum + 1% advance tax= 2%) 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.
It was said that the transition from FTR to NTR has substantially increased compliance requirements while simultaneously creating significant working capital pressures for exporters. Although taxes are collected upfront through withholding tax and advance tax deductions on export proceeds, the actual tax liability of many exporters under NTR is considerably lower. Several small export sectors’ supply chains are not fully documented, like the food/agro-based sector.
Consequently, exporters are compelled to finance the government through excess tax collections that remain blocked in refund claims for prolonged periods, discouraging SMEs and newcomer exporters. The committee was further informed that instead of reviving FTR for exports from NTR, the government has increased the minimum tax from 1% to 1.25%.
By increasing the minimum tax, the additional tax burden has also increased in tax rates for companies/AOP, which is not sustainable for the exporters in the international market where they face cut-throat competition with a narrow profit margin and high compliance costs, said Bilwani.