ISLAMABAD:
The government on Friday announced a Rs17 trillion tax collection target for the new fiscal year, including over Rs1.7 trillion through the petroleum levy, but also gave relief of Rs360 billion to the salaried class, real estate and businesses aimed at kick-starting the economy.
The salaried class received Rs52 billion tax relief, while Rs115 billion worth of tax relief was given to the real estate sector. The government imposed a 30% federal excise duty on electric vehicles valued up to Rs30 million and 40% on electric vehicles above Rs30 million.
It also imposed a 5% income tax on income from social media platforms and reintroduced a ban on purchases of major assets if the declared income does not support the purchase. An 18% sales tax has been imposed on hybrid vehicles.
The government imposed Rs306 billion in additional taxes and took Rs354 billion worth of enforcement measures to chase the new tax target of Rs15.264 trillion by the Federal Board of Revenue (FBR). The petroleum levy target is set at Rs1.68 trillion, the climate support levy at Rs50 billion, and the electric vehicle adoption tax at Rs22.8 billion.
Some of the measures are expected to kick-start the economy, including the decision to either abolish or reduce regulatory duties on 1,914 tariff lines. The government has also proposed to reduce customs duties on 3,125 tariff lines, including abolishing the 5% customs duty.
Mohammad Ashfaq, joint secretary of the commerce division, said that Rs180 billion in relief has been given by lowering import duties as part of the second phase of the implementation of the National Tariff Policy. The government has reduced the simple average weighted tariffs by 3.56% to 13%.
The Finance Bill 2026-27, which the government laid before parliament, also carried Rs306 billion worth of additional revenue measures aimed at chasing the Rs15.264 trillion new tax target for the FBR.
Unlike in the outgoing fiscal year when the FBR’s tax target was not a binding condition of the International Monetary Fund (IMF), the government will have to seek an IMF board waiver for any slippages against the targets. The provincial grants of Rs1.035 trillion to the centre will also be contingent upon the FBR’s revenue performance.
For the first time, four provinces have linked Rs1.035 trillion in grants to the FBR on the basis of a Rs15.264 trillion target. In case of any slippage, the grant amount would automatically reduce.
The government has proposed these measures to extract a minimum Rs2.5 trillion from the sluggish economy in a bid to achieve the new tax target. It is 17% higher than last fiscal year.
Income tax
The government has given Rs52 billion relief to the salaried class. On monthly income of up to Rs267,000, the tax rate has been reduced by 3% to 20%. On monthly income of up to Rs341,000, the rate has been reduced to 25%, with 160,000 taxpayers in this bracket.
The government has set a 29% rate on income up to Rs467,000 per month and also introduced a 32% rate on monthly income of up to Rs583,000. For monthly income over Rs583,000 (Rs7 million plus annually), the government has charged a 35% rate by significantly relaxing the ceiling. This will reduce a person’s annual tax by Rs257,000.
Hamid Ateeq Sarwar, a member of the FBR, said that additional intermediate slabs have been introduced and the threshold for the maximum tax rate of 35% has been increased from Rs4.1 million to Rs7 million annually. The government has also abolished a 9% surcharge on higher income of over Rs10 million per annum.
After a court judgment, the government has proposed to abolish tax on deemed income from immovable property.
Sarwar said that super tax has been abolished for persons with income of up to Rs500 million. The rate has been reduced from 10% to 8% for persons with income above Rs500 million. However, these concessions do not apply to banking, oil exploration companies and fertiliser sectors.
The government has also reduced the advance tax on the sale and purchase of immovable property, said Dr Najeeb Memon, Director General of the Tax Policy Office. He said that on the sale of property, three slabs have been merged and a single rate of 2.75% has been proposed against the previous 5.5%.
On the purchase of property, the tax rate has been reduced from 2.5% to 1.25%, which will encourage documentation and facilitate transactions in the real estate sector, said Dr Sarwar. However, sources said that the IMF had issues with the reduction in real estate sector taxation and the government was still in negotiations with the lender.
The government has also reduced tax on export proceeds by 0.75% to 1.25%. It has extended the income tax rate of 0.25% for IT exports for three more years. In another positive step, it has reduced the withholding tax on credit and debit card foreign transactions from 5% to 0.5%.
It has proposed that tax deducted on e-commerce transactions shall be adjustable for sellers with turnover exceeding Rs200 million.
A tax credit equal to 10% of the investment made in electronic resources for integration with the FBR’s computerised systems has been introduced to facilitate documentation and digital compliance.
Income tax exemption has been extended to specified charitable and welfare organisations, including the Pakistan Red Crescent Society, Shaheen Foundation, Bahria Foundation, SIUT and Dawat-e-Hadiya.
The government has abolished the 1% capital value tax on ownership of foreign movable and immovable assets.
The turnover tax on wholesalers and distributors has been doubled to 0.5%. The turnover threshold for exemption from withholding tax for small traders has been increased from Rs100 million to Rs200 million.
The government has increased the minimum income tax on courier, logistics, human resource outsourcing, oil drilling and transport services from 6% to 7%. On port and LNG terminal services, the rate has been reduced by 3% to 12%.
To discourage misuse of life insurance policies and reduce arbitrage through sham life insurance policies, the government has imposed a tax on such schemes.
A 5% withholding tax on income from social media platforms has been imposed, which banks will deduct before making payments. This will affect digital content creators and social media influencers from platforms such as YouTube, Facebook, Instagram and TikTok.
The government has also increased the withholding tax on industrialists on their imports from 1% to 3% and from 2% to 6.5%. It has also imposed an additional 3% sales tax on these services.
Customs duty
The government has offered Rs180 billion in relief on the import of goods under strategic tariff rationalisation via the National Tariff Policy (NTP) 2025-30.
It has reduced existing customs duty from 20% to 15% and 10%, from 15% and 10% to 10% and 5%, and the existing 5% slab has been abolished for input goods of different industrial sectors on 92 tariff lines. It has also reduced additional customs duty from 6% to 4% on 449 tariff lines, from 4% to 2% on 2,107 tariff lines, and eliminated the additional customs duty rate of 2% on 569 tariff lines.
Likewise, it rationalised regulatory duties on 1,914 tariff lines. The existing 50% regulatory duty on 359 tariff lines has been lowered to 20%, said Mohammad Ashfaque.
It also lowered regulatory duty by 20% on all rates between 2.5% and 20% across 1,347 tariff lines. Regulatory duty rates of 2.5%, 2% and 1% have been reduced by 20% or completely eliminated on 208 tariff lines.
The government has exempted customs duty on critical cancer-related active pharmaceutical ingredients (APIs) under the Fifth Schedule. It also reduced customs duty from 20% to 10% on specialised construction-related vehicles for the construction sector.
Customs duty on defence imports has been abolished, while duty on bombproof vehicles for the Shanghai Cooperation Organisation summit has also been abolished.
Sales tax
The government has abolished sales tax on magazines and enhanced the scope of exemption on parts of aircraft for import and lease by PIA. It also withdrew the 18% tax on sanitary pads and contraceptive products.
The 18% sales tax on shipping and brownfield refineries has been abolished. It has also moved 21 fast-moving consumer goods to the third schedule of sales tax to raise Rs50 billion in revenue. These goods, such as packaged milk, will now be taxed at market price.
It has also imposed a 3% additional sales tax on imported raw materials by industrialists.
FED
The government has reduced federal excise duty on business class tickets to Rs50,000 for the Americas – a reduction of 84% – to Rs25,000 for the Middle East, and to Rs40,000 for the rest of the world.
It has proposed a reduction in FED on the import of acetate tow from Rs44,000 to Rs10,000 and removed federal excise duty on WHO standard-compliant sports or electrolyte-replenishing beverages.
It has extended the exemption on the import of CKD kits for electric vehicles for one year.
The government has increased duty on e-liquid for electronic cigarettes to Rs16,500 per kg from Rs10,000 per kg. This measure also removed the highest possible tariff of 65% of the retail price imposed under the previous regime. The government has imposed a 30% FED on luxury EVs valued between Rs20 million and Rs30 million, and 40% on EVs worth over Rs30 million. Likewise, it has imposed a 70% regulatory duty on vehicles between 2,000cc and 3,000cc, and 81% on internal combustion engine vehicles above 3,000cc.
