Dr. Ikramul Haq & Abdul Rauf Shakoori
The eruption of market closures in Karachi and Lahore on July 19, 2025, was not a spontaneous act of commercial dissent but rather a cumulative outburst against the government’s steadily tightening grip on Pakistan’s trading class. The Finance Act 2025 introduced sweeping fiscal and enforcement measures that catalyzed immediate backlash from major trade associations.
The insertion of section 37A and 37B in the Sales Tax Act, 1990 granted the Federal Board of Revenue (FBR) powers tantamount to unchecked policing authority, including arbitrary arrests. These sections, though veiled under the guise of curbing tax evasion, fundamentally erode the principles of due process and proportionality in tax enforcement. The simultaneous inclusion of section 21(s) in the Income Tax Ordinance, 2001 penalizing cash transactions above Rs. 200,000, and the rollout of digital invoicing through SRO 709 further created an intrusive compliance burden on small and medium enterprises.
The imposition of e-bilty under section 40(c) of the Customs Act, 1990 marked a turning point, particularly agitating the logistics and supply chain sectors. The requirement to register and digitally document inter-provincial goods movement not only created a redundant bureaucratic tier but also increased transaction times, operational costs, and exposure to arbitrary penalties.
The above single regulatory layer incited discontent in a sector already grappling with cumulative toll charges and discretionary challans, as expressed by a senior representative of the United Goods Transport Alliance. The cascading implications of such measures were most visible in the closure of Karachi’s New Sabzi Mandi [fruit and vegetable wholesale market] for the first time in history, an event emblematic of agricultural supply chain paralysis.
The division within the business community in response to the strike call reveals a deeper institutional issue. The decision of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) to postpone the strike in favour of negotiations contradicts the unilateral call of Karachi Chamber of Commerce and Industry (KCCI) to proceed, supported by Lahore, Hyderabad, and other regional groups. This lack of unity highlights the government’s strategic use of divide-and-rule tactics, offering verbal assurances without official policy reversals, as emphasized by the KCCI leadership.
The strike, as later clarified by business leaders, was not a rebellion but a strategic last resort prompted by an unresponsive government apparatus. The veiled threat of escalated action, should the government fail to incorporate business-friendly revisions, underlines a boiling point in public-private sector trust.
The FPCCI’s dissociation from the strike demonstrates a widening trust deficit between central and regional trade bodies, further aggravating policy uncertainty.
The discontent of the trading community occurs against the backdrop of sobering trade statistics released by the Pakistan Bureau of Statistics. The data for fiscal year (FY) 2025, ending June, reveals a trade deficit expansion of 9.3% year-on-year (YoY) basis. Exports grew marginally by 4.45%, reaching US$32.04 billion from US$30.67 billion, similarly, imports rose more sharply by 6.58%, from US$54.78 billion to US$58.38 billion. The worsening balance of trade, amounting to a deficit of US$26.34 billion, exposes structural challenges rather than short-term volatility.
The commodity-specific breakdown of imports elucidates critical trends. The petroleum group saw a YoY contraction of 5.76%, reducing its share from 30.87% to 27.30%, attributed largely to global price stabilization rather than domestic efficiency. The import value dropped from $16.91 billion to $15.93 billion. However, the agricultural and chemical import bills rose modestly by 3.24%, while food imports surged by 11.19%, reflecting increased external dependency in essential sectors.
The machinery group recorded a 13.37% increase, from US$8.5 billion to US$9.64 billion, indicating industrial retooling but also raising questions about domestic manufacturing sufficiency. Similarly, textile imports, a sector Pakistan prides as its export mainstay, rose alarmingly by 32.68%, reflecting either raw material shortages or inefficient backward linkages. The cumulative effect of these indicators suggests that while trade volume has increased, value addition and import substitution remain glaringly absent.
The modest growth in exports offers little solace. Without sector-wise data in the trade report, it is impossible to attribute the US$1.36 billion export uptick to sustained policy success. The possibility remains that global commodity prices or transitory demand surges, rather than competitive advantage, have underpinned this marginal increase. The increasing trade deficit juxtaposed with fiscal tightening through the Finance Act paints a contradictory policy canvas.
The government’s simultaneous efforts to offer climate-aligned trade incentives reflect a commendable but disjointed policy architecture. The 50% reduction in port handling and vessel charges for dry bulk exports at Karachi Port and previously at Port Qasim is aimed at decarbonizing logistics. The maritime minister’s emphasis on smart maritime practices, reduction of container dwell times, and use of AI and drone surveillance reflects a forward-thinking stance. However, the contradiction between these progressive policies and punitive taxation frameworks undermines cohesive economic governance.
The maritime incentives, which include slashing an annual 5% hike in fees, must be viewed considering broader trade facilitation mechanisms. The minister’s vision to integrate AI and monitoring technologies should logically extend to customs reforms, yet the ground reality reflects delays, red tape, and inconsistent clearance protocols. A more synchronized policy structure would align environmental goals with trade liberalization and regulatory predictability.
The broader concern lies in the government’s overreliance on fiscal policing rather than incentivization. The Finance Act’s enforcement clauses confer unchecked authority to the FBR, which historically has struggled with corruption, incompetence, and political misuse.
The power of arrest before the finality of civil liability and transaction limits under section 37A of the Sales tax Act, 1990 ignores the realities of Pakistan’s informal economy, where cash remains the dominant medium. The risk of selective enforcement and harassment looms large, especially for SMEs and unbanked traders.
The imposition of mandatory digital invoicing and e-bilty further alienates businesses that lack the digital literacy or infrastructure to comply. This abrupt digitization mandate, unaccompanied by capacity-building or subsidies, imposes asymmetrical burdens. The net result is likely to be increased under reporting, paperless trade evasion, and judicial backlog owing to FBR overreach.
The government’s reluctance to formalize dialogue through policy tools instead of ad-hoc committees reflects executives’ tendency toward over-centralization. Without legally binding results, such consultations function more as superficial displays rather than effective means of course correction.
Similarly, Pakistan’s aspiration to establish trade corridors with East Africa must be grounded in logistical efficiency, legal harmonization, and trade financing tools. The government needs to realize that without reducing transaction costs and harmonizing customs procedures, such geographic diversification will remain aspirational.
The calls for reinstating the Final Tax Regime by exporters must be seen through the lens of predictability and compliance ease. The removal of this regime in favor of minimum tax or hybrid structures introduces unnecessary complexity and administrative discretion, disincentivizing voluntary compliance. The demand signals from KCCI and other chambers are not anti-tax but pro-certainty. Businesses thrive in environments where expectations are predictable, and enforcement is rule-bound.
The fundamental flaw in the Finance Act 2025 is its failure to distinguish between tax evasion and under-documentation. The former warrants enforcement, the latter requires incentivization. By treating the informal and semi-formal sectors as inherently delinquent, the government has eroded the delicate social contract underpinning taxation.
The sharp response from trade associations reflects the depth of this breakdown. Their remarks labeling the FBR powers as “absurd laws” reflect an acute sense of betrayal, given the lack of reciprocal state facilitation. When enforcement supersedes service delivery, the tax regime transforms from a revenue tool into a coercive apparatus.
The data from the PBS and the market response to the Finance Act, 2025 illustrate a system at war with itself. The state demands transparency and compliance but offers opacity and overreach. The business community seeks efficiency and inclusion but is met with regulation and disregard.
The only path forward requires (i) the immediate repeal or redrafting of sections 37A, 37B, 21(s), and 40(c) to align with principles of necessity and proportionality; (ii) the institutionalization of fiscal dialogue through chambers with statutory representation; and (iii) the decoupling of enforcement from discretion via independent oversight mechanisms.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing.
He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law.
He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes with Huzaima Bukhari is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46