Senators warn of capital flight, urge reforms as penalties rise and enforcement tightens
Pakistan’s top tax authority confirmed that a growing number of businesses are shifting operations to Dubai to escape high tax burdens, a revelation that alarmed lawmakers and renewed calls for urgent reform to stem capital flight.
Hamid Attique Sarwar, Member Inland Revenue Operations at the Federal Board of Revenue (FBR), told the Senate Finance Committee on Wednesday that “excessive taxation” is driving firms to more investor-friendly destinations like the UAE. “We are seeing businesses relocating to Dubai due to Pakistan’s tax environment,” Sarwar said, echoing growing concerns in the business community.
The admission triggered a wave of concern from senators, including former law minister Farooq H. Naek, who cited property tax rates ranging from 5% to 35% for non-filers as a deterrent to investment. He noted that many Pakistanis hold undeclared assets in Dubai, reflecting both capital outflow and tax evasion.
Penalty Spike, Real-Time Tracking
In response, FBR is proposing to triple the maximum penalty for tax evasion to PKR 1.5 million starting July 2025, up from the current PKR 500,000. “The present penalty does not deter fraud,” Sarwar told the committee, chaired by Senator Saleem Mandviwalla. The proposed changes will be tabled in Parliament for approval.
Sarwar said the agency has intensified enforcement, sealing around 20 non-compliant businesses daily in Karachi, Lahore, and Islamabad. A crackdown on the sugar industry alone raised tax revenue by 34.5% and led to 95% of the sector being integrated into a real-time monitoring system.
Refunds Flow, But Gaps Remain
To support exporters, FBR said refunds for key sectors including textiles, leather, surgical, and other goods are now being processed within 72 hours. But challenges persist, especially in food exports, as the system transitions from manual to centralized. Refunds for all sectors are expected to clear by May 23.
Reform Constraints and Global Norms
Despite suggestions from Senator Faisal Vawda to introduce reward schemes for whistleblowers, FBR officials argued such incentives are untenable under the country’s current IMF obligations. Sarwar also hinted at a long-term plan to phase out domestic tax refunds, aligning with international norms that limit such rebates to export-linked activity.
In a final move to widen compliance, FBR plans a nationwide media campaign to raise awareness and encourage tax enforcement cooperation.
