[ez-toc]KARACHI – In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided on Monday to keep the policy rate unchanged at 11 percent, citing moderate inflation but rising risks from recent floods.

“The MPC decided to keep the policy rate unchanged at 11% in its meeting today,” said the Monetary Policy Statement (MPS).

The committee noted that headline inflation remained relatively moderate during July and August 2025, while core inflation continued to decline at a slower pace. Economic activity, reflected in high-frequency indicators including large-scale manufacturing (LSM), also gained momentum.

However, the MPC warned that the near-term macroeconomic outlook has weakened slightly due to the ongoing floods. The temporary yet significant supply shock, particularly to the crop sector, may push up food inflation and widen the current account deficit beyond earlier projections for FY26. Growth is also expected to moderate compared with previous estimates.

“In view of the evolving macroeconomic outlook and the flood-related uncertainty, the MPC deemed today’s decision appropriate to maintain price stability,” the statement said.

Key Developments Since the Last MPC Meeting

• FX Reserves: SBP’s foreign exchange reserves remained stable despite net debt repayments and a current account deficit.

• Inflation Expectations: Consumer and business inflation expectations inched up in September, according to the SBP-IBA sentiment surveys.

• Tax Collection: FBR’s revenue during July–August 2025 fell slightly short of target but still showed strong year-on-year growth.

• Global Trade: Revised US import tariffs have somewhat reduced global trade uncertainty.

Inflation Outlook

The MPC assessed that the real policy rate remains adequately positive to keep inflation within the medium-term target range of 5–7 percent, despite expected short-term volatility.

It noted that the recent floods have heightened uncertainty for near-term inflation, especially for food prices. Weekly SPI data already shows sharp increases in perishables and wheat products. However, part of this spike may be offset by recent favourable adjustments in electricity tariffs.

“On balance, inflation may cross the upper bound of the target range for most of the second half of FY26 before reverting to the target range in FY27,” the MPC said. It also flagged risks from the evolving flood situation, volatile global commodity prices, and possible unanticipated adjustments in energy tariffs.

Background & Market Expectations

At its previous policy meeting on July 30, 2025, the MPC had also kept the policy rate unchanged at 11% due to a worsened inflation outlook after higher-than-expected energy price adjustments.

Analysts widely predicted the status quo this time as well. A Topline Securities survey found 72% of market participants expected no change in the policy rate amid flood-related risks to food and overall inflation. Similarly, Arif Habib Limited (AHL) also forecast the SBP would maintain the rate, cautioning that external pressures may re-emerge as imports of agricultural commodities and cotton pick up to offset flood-related losses.

Recent Economic Indicators

Since the last MPC meeting:

• The rupee has appreciated by 0.5%.

• Domestic petrol prices have decreased by 3%.

• International oil prices have fallen nearly 10% to around $63 per barrel.

According to PBS data, Pakistan’s headline inflation clocked in at 3% YoY in August 2025, down from 4.1% in July. The current account posted a deficit of $254 million in July 2025, following a surplus of $328 million in June.

SBP’s foreign exchange reserves rose by $34 million on a weekly basis, reaching $14.34 billion as of September 5, 2025. Total liquid foreign reserves stood at $19.68 billion, while net foreign reserves held by commercial banks were $5.34 billion.

ISLAMABAD – The Federal Board of Revenue (FBR) on Wednesday briefed top business leaders on a wide-ranging transformation plan designed to boost Pakistan’s tax-to-GDP ratio from the current 10.24 percent to 18 percent over the medium term.

According to the roadmap, FBR’s direct share is projected to rise to 14 percent, with provincial revenues contributing an additional three percent and the petroleum levy one percent, bringing the total to the government’s 18 percent target.

Officials acknowledged that Pakistan faces a significant shortfall in major tax areas. The FBR intends to address this gap by rolling out digital systems, modern audit practices and streamlined processes.

The high-level session was chaired by FBR Chairman Rashid Mahmood and attended by representatives from the Overseas Investors Chamber of Commerce and Industry (OICCI), the Pakistan Business Council (PBC) and other major business groups.

Member Inland Revenue Operations Dr Hamid Ateeq Sarwar delivered a detailed presentation on how the transformation plan—approved by the prime minister in October 2024—is being implemented. The reforms focus on three pillars: people, technology and processes.

The FBR is significantly enhancing its institutional capacity by hiring around 1,600 auditors to strengthen audit coverage and compliance. These new recruits will be trained at leading universities to bring skills and standards closer to those of large corporate organisations. Recruitment is being done on merit, with integrity checks built in, while a new reward-and-rating system will offer performance-based incentives to officers.

Participants were also given live demonstrations of technology-driven initiatives across various sectors. Officials said these reforms have already helped lift the FBR’s tax-to-GDP ratio from 8.8 percent in FY2023–24 to 10.24 percent in FY2024–25.

New measures such as Faceless Customs Appraisement, though still in its early stages, have increased revenue per GD by 17.3 percent and improved customs efficiency at ports by cutting dwell time and demurrage costs. In addition, stepped-up enforcement actions have produced eight times more revenue in FY2024–25 compared to the previous year.

Chairman Mahmood emphasised that taxpayer facilitation remains a core priority. A dedicated facilitation division has been established at the Karachi Large Taxpayers Office, where senior officers will personally handle taxpayers’ issues. He also proposed the creation of a joint committee of the PBC, OICCI and FBR to resolve valuation rulings and other policy matters in a collaborative way.

The meeting ended with both the FBR and business representatives expressing confidence that sustained reforms and stakeholder engagement will help achieve the government’s ambitious revenue targets.

KARACHI – Pakistan’s total public debt stock expanded sharply by nearly Rs9 trillion in Fiscal Year 2024–25 (FY25) as the federal government leaned heavily on both domestic and external borrowing to bridge its budget deficit.

According to data released by the State Bank of Pakistan (SBP) on Tuesday, the central government’s overall debt – which includes domestic and external obligations – grew by 13 percent during FY25. Total liabilities rose to Rs77.888 trillion by June 2025, up from Rs68.914 trillion a year earlier, reflecting an increase of Rs8.974 trillion.

Market observers noted that the 13 percent debt growth rate is running ahead of Pakistan’s nominal GDP growth of around 8 percent. As a result, the country’s debt-to-GDP ratio edged up to 73.2 percent in FY25, according to estimates by Topline Securities.

Despite the sharp rise in the overall debt stock, analysts said the government has demonstrated a more proactive debt management approach compared to previous years. In a landmark move, the federal government undertook early retirements worth over Rs2.6 trillion, aided by higher SBP profits transferred to the treasury.

According to Khurram Schehzad, Advisor to the Finance Minister, the Ministry of Finance in the first half of FY25 retired Rs1 trillion of domestic commercial debt ahead of schedule — the first such large-scale prepayment operation in Pakistan’s history.

Further, the government made an additional early retirement of Rs500 billion on June 30, 2025, followed by another repayment of Rs1.133 trillion on August 29, 2025 through the Debt Management Office. Combined, these operations brought total early retirement of SBP-related debt to Rs1.633 trillion.

Including both the central bank and commercial market components, Pakistan’s total early debt retirements within less than a year now exceed Rs2.6 trillion — an unprecedented milestone in the country’s fiscal management history.

LCCI Foresees Hard Times, Pushes for Fair Tax Reforms

ISLAMABAD — Pakistan’s economy is heading into a difficult year, with fiscal year 2025-26 expected to present serious challenges, warned Ali Imran Asif, Senior Executive Committee Member of the Lahore Chamber of Commerce and Industry (LCCI).

Asif cautioned that although the Federal Board of Revenue (FBR) has improved tax collections, the gains are largely coming from higher taxes on existing taxpayers rather than through expansion of the tax base. With government spending continuing to rise, meeting the fiscal deficit target of 3.9% set for the year could prove difficult.

He highlighted that Pakistan remains under close scrutiny from the International Monetary Fund (IMF), which is monitoring adherence to fiscal discipline. Despite being a populous nation with significant resources, he noted, the country is not advancing at the pace needed for sustainable growth.

“We are moving in the right direction in certain areas, but not fast enough. Unless all sectors of the economy progress together with urgency, sustainable development will remain out of reach,” Asif said. He called for a more balanced taxation policy that does not continue to burden already documented sectors while leaving large parts of the economy untaxed.

Other business leaders echoed similar concerns. Muhammad Riaz, representing the export sector, pointed out that FBR’s record collections are being achieved despite a shrinking industrial base, as manufacturers face crippling electricity tariffs, unreliable gas supply, and rupee volatility.

Pakistan’s exports stood at $32 billion last year—far below potential—while Bangladesh, with a smaller population, managed exports worth over $48 billion. Economists attribute Pakistan’s weaker performance to high production costs and an uneven tax structure.

“When the tax system extracts more from those already in the net but fails to bring the vast informal economy into documentation, it creates an unfair and uncompetitive environment,” said Ahmad Raza, an international trader.

Industry stakeholders argue that broadening the tax base by including untaxed sectors such as wholesale markets, real estate, and parts of the services industry could yield substantial revenue without placing additional pressure on compliant businesses. They further urged the government to curb unnecessary expenditures, particularly administrative costs and losses from state-owned enterprises, so that austerity measures are shared by the public sector and not imposed solely on taxpayers.

The business community believes that expanding the tax net and leveraging modern technology to track untaxed income streams would create a fairer system and rebuild trust. However, concerns remain that FY 2025-26 could bring more of the same issues: over-reliance on indirect taxes, a narrow tax base, and an FBR more focused on meeting IMF benchmarks than introducing progressive and equitable reforms.

FBR Revises Customs Valuation for Polyester, Viscose, and Acrylic Yarn Imports

The Federal Board of Revenue (FBR) has announced revised customs values for Polyester Spun Yarn, Viscose Spun Yarn, Acrylic Spun Yarn, and their blends, following industry requests for updated valuation in line with current international market trends.

Previously, the customs values of these yarn types were determined under Section 25A of the Customs Act, 1969, through Valuation Ruling No. 02 issued on December 29, 2022. However, the Pakistan Yarn Merchants Association (PYMA) and other stakeholders later submitted representations, noting that more than 90 days had passed since the ruling and that the values no longer reflected prevailing global prices.

Importers informed the Directorate that a consensus-based formula for valuing these yarns had been developed earlier in coordination with the Department. However, this formula had become outdated due to a notable decline in the import volumes of several yarn types. They further pointed out that despite repeated follow-ups, no revision to the 2022 customs values had been made until now.

In response, the Directorate undertook a comprehensive review to re-determine values. While the Computed Value Method under Section 25(8) of the Customs Act was considered, it was deemed inapplicable as precise cost-of-production data from exporting countries was unavailable.

Instead, the Directorate analyzed multiple data sources, including international market prices of raw materials such as Polyester Staple Fiber (PSF), Viscose Staple Fiber (VSF), and Acrylic Staple Fiber (ASF). Price information was obtained from the CCF Group, a reputable industry source.

Conversion costs — from PSF to Polyester Spun Yarn, VSF to Viscose Spun Yarn, and ASF to Acrylic Spun Yarn — were calculated count-wise using price references from recognized international publications. These calculations formed the basis for determining customs values of 100% Polyester and Viscose Spun Yarn.

For blended yarns, conversion costs of combined Polyester, Viscose, and Acrylic Spun Yarns were assessed and added to establish their customs values. Additionally, the costs of converting Viscose Spun Yarn into multi-fold yarns (2-ply and 3-ply) were determined and included in the final valuation.

The updated customs values aim to bring valuations in line with market realities, ensuring fair assessment for both importers and the revenue authorities.

Swabi Tobacco Industry Protests Deployment of FBR and Rangers at Factories

SWABI: The Swabi Chamber of Commerce and Industry, along with leading tobacco entrepreneurs, has strongly condemned the deployment of Federal Board of Revenue officials, Rangers, and other law-enforcement agencies at green leaf units and tobacco factories in the district.

In a meeting chaired by chamber president Fazal Rahim Jadoon, attended by former presidents Sheraz Akram Bacha and Liaqat Ahmed Khan, as well as executive council members and industry representatives, participants expressed concern that the presence of law-enforcement officials during peak tobacco procurement season was disrupting business operations.

The chamber’s subcommittee on tobacco export and trade had already staged a protest last week against the government’s move. Industry representatives claimed the action unfairly targeted local exporters and small manufacturers while multinational companies remained unaffected.

“It is impossible to conduct business in such a tense environment. All green leaf threshing units pay their taxes regularly, yet we are being harassed,” said Mr Jadoon, noting that tobacco exports reached $167 million this year, significantly contributing to Pakistan’s economy.

The participants urged federal and provincial authorities to immediately intervene and create a business-friendly environment for the industry.

In a separate incident, a man was killed and two others were critically injured in a late-night firing in Razaar tehsil’s Ghulama village. Police said the victims, all from Parmuli village, were shot following a heated exchange. The injured were given first aid by Rescue 1122 and shifted to hospital, where 33-year-old Jahanzeb succumbed to his injuries. Police have registered an FIR against two suspects.

ISLAMABAD: The Federal Board of Revenue (FBR) has announced plans to hire 102 sector specialists and audit experts across 42 key industries as part of its strategy to enhance field audits, strengthen oversight, and improve tax compliance in Pakistan’s major economic sectors.

Targeted Industries

The recruitment drive will cover a wide range of industries, including automotive, aviation, banking, beverages, cement, ceramics, chemicals, coal, departmental stores, edible oil, education, electronics, fertilizers, flour mills, food imports, IT, manufacturing, paper and packaging, plastics, poultry, power, real estate, restaurants and marquees, rice mills, services, sugar, tea, telecom, textiles, and tobacco.

Phase-One Priority Sectors

In the initial phase, audits will focus on priority sectors such as:

• Automobiles

• Textiles

• Iron and steel

• Independent power producers (IPPs) and distribution companies (DISCOs)

• Pharmaceuticals

• Finance and insurance

• Banking

• Sugar

• Chemicals and fertilizers

• Real estate and construction

• Petroleum and lubricants

• Cement

• Telecommunications

• Tobacco

Selection Process

The FBR will engage human resource firms to provide qualified audit mentors and sector experts. A dedicated Selection Committee will evaluate candidates from a shortlisted pool, with interviews conducted either in person or virtually.

Objectives and Impact

This initiative is aimed at tightening audit controls, curbing tax evasion, and ensuring greater compliance across Pakistan’s most significant industries. By leveraging specialized expertise, the FBR seeks to improve transparency and efficiency in its audit processes.

Additional Regulatory Changes

Separately, the FBR has amended income tax regulations for the fiscal year 2025–26 to broaden the tax base and discourage non-compliance. Under the updated rules, non-filers withdrawing more than Rs50,000 per day from bank accounts will be subject to a 0.8% withholding tax, up from the previous 0.6%. The move is intended to discourage undocumented cash transactions and encourage individuals to file tax returns.

Tax Rule Reforms Mandate Electronic Invoice Integration with FBR System

ISLAMABAD: The Federal Board of Revenue (FBR) has introduced major amendments to the Sales Tax Rules 2006, strengthening measures against tax fraud and ensuring transparency through electronic invoicing. The changes include empowering commissioners to suspend sales tax registrations over fake invoices and mandating system integration for electronic invoices.

Suspension of Registration for Fake Invoices

Under the revised rules, a commissioner with jurisdiction can suspend a taxpayer’s sales tax registration—without prior notice—if there is sufficient evidence of issuing fake invoices, evading tax, or committing tax fraud as defined in clause (37) of section 2 of the Sales Tax Act.

Grounds for such suspension may include:

• The taxpayer not existing at their declared address

• Refusal to allow access to business premises or to provide records as required under Sections 25, 37, 40B, or 40C

• Business turnover exceeding five times the declared capital and liabilities

• Purchasing from or supplying to a suspended taxpayer for more than 10% of transactions in a month (subject to exceptions and value thresholds)

• Failure to file sales tax returns for three consecutive months, or filing null returns for six months

• Direct involvement in tax fraud

• Any other reason specified by the Board

Suspensions will remain in place pending further inquiry.

Enhanced Reporting for Manufacturers and Traders

The amendments also introduce stricter reporting requirements:

• Manufacturers of taxable goods must submit, in Annex-J of their monthly return, details of goods manufactured, produced, and supplied.

• Commercial importers, distributors, and wholesalers must report, in Annex-H1 of their monthly return, details of goods purchased or imported, along with details of goods supplied.

Mandatory Electronic Invoicing Integration

The updated rules require all registered persons to integrate their invoicing systems—whether hardware or software—with the FBR’s computerized platform for issuing and transmitting electronic sales tax invoices. Integration must be done through a licensed integrator or by other prescribed methods under the rules.

The FBR will notify the relevant registered persons or categories of taxpayers through the official Gazette. Those who have already integrated their point-of-sale systems with the FBR are considered compliant under the new provisions.

These changes mark a significant step toward digitalizing Pakistan’s tax system, reducing fraudulent practices, and ensuring accurate, real-time reporting of taxable transactions.