'Budget lacks export push, growth strategy'

OICCI warns informal cash economy surges 33%; BMG terms budget 'neither good nor bad'

KARACHI:

The Overseas Investors Chamber of Commerce and Industry (OICCI) has welcomed parts of the Federal Budget 2026-27 but raised serious concerns over the expanding informal economy and policy gaps, while other business bodies criticised the lack of a clear export-led growth strategy.

Presenting the budget in the National Assembly, Finance Minister Muhammad Aurangzeb announced total federal expenditure of Rs18,771 billion and set an economic growth target of 4%, describing the budget as anchored in "stabilisation, reform and growth".

OICCI acknowledged the budget as one "showing restraint, some structural ambition and meaningful forward movement" under fiscal pressure and International Monetary Fund (IMF) commitments. It noted that the Federal Board of Revenue's (FBR) collection of Rs13 trillion is a milestone worth acknowledging.

However, the chamber stated plainly that, "most of it was collected from those who were already paying" – organised businesses, formal sector companies and salaried taxpayers. Meanwhile, the informal cash economy has grown from Rs9 trillion last year to Rs12 trillion this year, a 33% surge in a single year.

"That is not a rounding error; it is a policy failure. Inaction on formalisation carries a measurable cost, and this number makes it undeniable," OICCI said.

The chamber welcomed the partial rationalisation of the super tax – abolition for income slabs between Rs150 million and Rs500 million, and a reduction from 10% to 8% for income above Rs500 million. However, it noted that the core corporate income tax rate remains unchanged, urging a broader rate reduction.

OICCI also commended the reduction in withholding and advance tax on export proceeds from 2% to 1.25%, and the rationalisation of advance tax rates in the real estate sector under sections 236C and 236K to flat rates of 2.75% and 1.5% respectively. The proposed National Faceless Assessment Centre was described as "among the more significant structural announcements".

Two serious concerns were recorded. First, there is no mention of restoring sales tax status or introducing zero-rating on oil refineries and marketing companies, which OICCI said is a huge burden holding back $6-10 billion in refinery sector investment. Second, the budget makes no move to review the Minimum Tax on Turnover or the Alternate Minimum Tax, which distort the tax burden by taxing turnover rather than profit.

Chairman Businessmen Group (BMG) Zubair Motiwala termed the budget "neither good nor bad", observing that despite some positive measures, it lacks a clear strategy for export growth, industrial revival and economic expansion.

Addressing a press conference after the budget speech, Motiwala said the Economic Survey had raised expectations of meaningful support for exports, but the budget failed to offer major incentives.

Expressing disappointment over the Final Tax Regime (FTR), he said the government reduced the withholding rate from 2% to 1.5% but converted it into a minimum tax, forcing exporters to remain within the normal taxation system. "This defeats the very objective of FTR. Exporters do not want additional complications," he remarked.

Motiwala welcomed the reduction in super tax rates and the complete abolition of super tax for companies earning profits up to Rs500 million, calling it a positive development. However, he said super tax itself should ultimately be abolished altogether.

He regretted that the budget remained silent on the high cost of electricity and gas, with no concrete roadmap to reduce energy tariffs. "Pakistan needs dollars and dollars can only come through exports. Exports will increase only when industries operate competitively. Without industrial growth, there can be no sustainable increase in revenues, no fresh investments and no meaningful economic progress," he emphasised, noting that industries were operating below capacity.

The BMG chairman BMG questioned how the government expected to achieve a revenue target of Rs15 trillion and generate an additional Rs1.5 trillion without creating an enabling environment for businesses and industries.

Motiwala appreciated the reduction in income tax rates for the salaried class, relief to the construction sector, and the emphasis on tax automation. He welcomed the establishment of a PRAL office in Karachi but expressed concern over only Rs10 billion allocated for the K-IV water project.

"It is a budget which neither hurts nor heals," he concluded.

The SITE Association of Industry (SAI) reviewed the budget with cautious appreciation but deep disappointment.

SAI President Abdul Rehman Fudda said, "Our members welcome the intent but reject the pace. Tariff reforms spread over five years, a marginal super tax reduction without a legislated sunset, and complete silence on industrial energy pricing will not revive factories operating at half capacity today."

SAI noted that the reduction in export withholding tax from 2% to 1.25% is modest relief for a sector carrying an effective tax burden exceeding 68%. The long-demanded restoration of FTR has not been addressed, and there is no mechanism to clear billions in outstanding GST and income tax refunds.

The association highlighted three unresolved issues: uncompetitive industrial electricity tariffs, expansion of the Third Schedule of Sales Tax that strains working capital, and a harsher penalty regime that disproportionately burdens compliant businesses.

"The formal industrial sector continues to bear the burden of higher taxes, costly energy, delayed refunds, and now steeper penalties, while being expected to compete globally. That is the real crisis, and this budget does little to address it," Fudda added. SAI urged the government to address these gaps through amendments before the Finance Bill is passed.