The coal sector, a vital part of Pakistan’s energy and industrial supply chain, faces severe challenges that deserve urgent attention. Particularly, small and medium-sized coal suppliers and middlemen who connect miners with industries are struggling to survive under the heavy burden of taxation and regulatory unfairness.
One of the biggest issues they face is sales tax deduction at the time of sale. Approximately 80% of the sales tax is deducted upfront when the coal is sold to end-users. However, when intermediaries purchase coal from local miners — many of whom operate at a small or medium scale — they are often unable to obtain a proper sales tax invoice. Due to high tax rates and the FBR’s rigid treatment, miners are hesitant or unwilling to issue invoices.
As a result, the entire input tax burden unfairly falls on the middlemen. They end up paying taxes twice: once without input tax adjustment at the time of purchase and again with heavy deductions at the time of sale. The margins shrink so drastically after bearing these extra costs that these businesses are left with almost no profit.
This situation is harming small businesses and threatening the entire energy supply chain. A weakening local coal market increases our reliance on imported coal, putting immense pressure on Pakistan’s strained foreign exchange reserves. In other words, these local operational issues have a direct impact on the macroeconomy.
It is imperative that the government and Federal Board of Revenue (FBR) urgently address these challenges:
– A simplified and fair tax regime must be introduced for small and medium coal suppliers.
– Sales tax invoice issuance must be facilitated and encouraged through reforms.
– Middlemen should not be forced to bear the tax burden created by the structural gaps in the system.
If these issues remain unaddressed, Pakistan risks the collapse of an important local industry and further deterioration of its balance of payments position.
The voice of the middlemen must be heard today, before tomorrow, when it becomes too late.
By Saadat Ali
Certified Finance & Accounting Professional & Tax Consultant
