Just four days before the scheduled approval of the Rs435 billion in tax measures outlined in the 2025–26 federal budget, the government has presented an additional Rs36 billion mini-budget. Alongside this, it has eased previously proposed restrictions on high-value transactions by individuals with undeclared or insufficiently documented income.
This move aims to address public criticism of earlier blanket bans that potentially disrupted legitimate economic activity. With the inclusion of the mini-budget, the total value of new taxes now amounts to Rs462 billion.
Notable changes include revised thresholds for disqualifying individuals from making high-value purchases or investments. For example, restrictions will not apply to car purchases below Rs7 million. However, for property transactions, the limits remain strict—over Rs100 million for commercial plots and Rs50 million for residential properties.
Similarly, individuals holding more than Rs100 million in total annual bank deposits or investing more than Rs50 million in the stock market will fall under the ineligibility criteria. These thresholds are based on the assumption that the top 5% of income earners are responsible for significant tax evasion, while the remaining 95% are not making large-scale investments.
The Rs36 billion in additional taxation was introduced to offset revenue losses from a reduction in the proposed sales tax on solar panel imports—from 18% down to 10%—and to help fund a 10% increase in government employee salaries.
In a move likely to impact poultry prices, a federal excise duty of Rs10 has been proposed on one-day-old chicks, via amendments to the Federal Excise Act, 2005. The International Monetary Fund (IMF) had previously rejected a similar proposal, citing contradictions in food tax policies.
According to the Chairman of the Federal Board of Revenue (FBR), the new tax measures aim to balance the budget after key concessions, including the reduced solar panel tax and increased salaries.
The parliamentary finance committee reviewed and endorsed these new measures with relatively smooth proceedings, chaired by senior lawmakers and supported by both treasury and opposition members.
Among the budget highlights, the government had initially planned an 18% sales tax on solar panel imports, expected to generate Rs20 billion. After political negotiations, this rate was reduced to 10%, bringing down projected revenue to Rs12 billion.
In coordination with the IMF, the income tax rate for individuals earning Rs100,000 per month was initially proposed to drop from 5% to 1%. However, to accommodate the higher salary increase approved by the Prime Minister in a cabinet meeting just before the budget announcement, the tax for this slab has now been fixed at 1%, while other revenue measures were added to cover the shortfall.
The government has also proposed to raise the income tax on dividends earned by companies from mutual funds that invest in debt instruments—from 25% to 29%. Additionally, the withholding tax on returns from government securities for institutional investors will increase from 15% to 20%.
Earlier, the finance minister had introduced Rs435 billion in new tax measures, including a Rs2.5 per liter carbon levy and a car engine levy of up to 3%. Of this, Rs312 billion were revenue measures directly tied to the FBR.
With recent adjustments, total new taxes now stand at Rs462 billion. The government has set the FBR’s tax collection target for the next fiscal year at Rs14.13 trillion, to be supported by enforcement efforts and these new measures.
Currently, mutual funds and Real Estate Investment Trusts (REITs) are taxed at 15%. Under the revised regime, REITs will continue at 15%, while mutual funds will face a 25% tax rate based on proportional income from equities and debt. A 29% tax will apply to dividends from debt-based mutual funds when received by companies.
Also, a 20% tax will be levied on profit earned on deposits held with banks and financial institutions, and on returns from government securities for all non-individual investors.
The National Assembly’s Finance Committee has passed the Finance Bill 2025–26, incorporating input from the Senate and other stakeholders. FBR Chairman confirmed that six new taxation proposals were shared with the IMF—three of which have been approved.
Lastly, to eliminate discrepancies impacting local industry, a uniform 10% sales tax will now apply to both imported and locally produced cotton.
