ISLAMABAD: As Pakistan readies its federal budget for the 2025-26 fiscal year, significant tax reforms and regulatory changes are on the horizon, with policymakers aiming to strike a balance between economic relief and meeting the International Monetary Fund’s (IMF) structural requirements.
Industry Relief Through Duty Reductions
Key budget proposals include a 2–3% reduction in regulatory and customs duties on over 3,500 imported items, with a focus on lowering costs for the industrial and construction sectors. In addition, the government is considering abolishing or cutting withholding tax on raw material imports to stimulate domestic production and reduce input expenses.
Steep Tax Hikes for the Auto Sector
While industries may see some relief, the auto sector is expected to face higher taxation. The General Sales Tax (GST) on locally assembled 850cc vehicles is likely to increase by 5.5%. GST on other domestically manufactured vehicles could rise from 12.5% to 18%, leading to a considerable spike in consumer prices.
Super Tax Revisions for Large Corporations
The budget also includes revisions to the super tax structure for high-income businesses:
- Companies earning up to Rs150 million annually are expected to retain their current exemption.
- For firms earning Rs200 million, a 0.5% reduction is proposed.
- Those earning Rs250 million may see the rate reduced from 1.5% to 1%.
- Companies with annual earnings of Rs300 million or more will likely continue to pay a 4% super tax.
Finance Ministry officials have indicated that the overall super tax rate for the broader corporate sector is expected to remain unchanged.
IMF-Mandated Tax Base Expansion
In accordance with IMF recommendations, the government is preparing to broaden the tax base and scale back sector-specific exemptions. Proposed measures include:
- Taxing agricultural income for the first time.
- Bringing income from freelancing and digital platforms — especially foreign earnings and social media revenue — into the tax net.
- Introducing taxes on previously exempt goods such as fertilizers, pesticides, and bakery products.
- Reducing tax rates on beverages and tobacco products.
- Eliminating tax exemptions in the former FATA region and applying a flat 12% tax.
Additionally, the federal excise duty on property transactions may be scrapped, but capital gains tax on both real estate and stock market investments is expected to increase.
The IMF has emphasized the need for Pakistan to document its informal economy, broaden its revenue base, and strengthen tax compliance to stabilize public finances and support long-term growth.
