ISLAMABAD: The government has set an ambitious tax collection target of Rs15.264 trillion for the next fiscal year, aiming to generate an additional Rs650 billion through a mix of taxation, enforcement and administrative measures, even as it announced significant relief for the targeted salaried class, the corporate sector, exporters and real estate market in the budget for 2026-27.
However, the government has abolished and rationalised the super tax and has also provided relief to exporters and real estate sector, while reducing Regulatory Duty as well as Additional Customs Duty on hundreds of tariff lines.
Through the expanded list of the Third Schedule, which now covers 36 items, the government will generate an additional tax of Rs70 billion. The imposition of Federal Excise Duty (FED) on naphtha, solvent oil and turpentine will bring in Rs30 billion, while an enhanced tax rate on luxury electric vehicles will yield Rs25 billion. The FBR has ended the arbitrage between industrial and commercial importers: the rate for industrial imports stood at 1-2 percent income tax and 18 percent GST, while the commercial importer rate hovered at 3 and 6.5 percent plus 18 percent GST plus 3 percent additional sales tax. This measure will curb the misuse of lower income and sales tax rates by industrial units selling their material commercially, bringing an additional Rs30 billion into the national kitty.
The items on which the Third Schedule has been expanded include vegetable and animal fats and oils sold in retail packing; sugar confectionery sold in retail packing; pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagne, gnocchi, ravioli, cannelloni, and couscous, whether or not prepared, sold in retail packing; sauces, ketchup and other preparations therefore; mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard, sold in retail packing; fermented beverages sold in retail packing; petroleum jelly, paraffin wax, microcrystalline petroleum wax, slack wax, ozokerite, lignite wax, peat wax, other mineral waxes and similar products obtained by synthesis or other processes, whether or not coloured, sold in retail packing; insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparations or articles put up in forms or packings for retail sale; plates, sheets, film, foil, tape, strip and other flat shapes of plastics, whether or not in rolls, sold in retail packing; tableware, kitchenware, plastic furniture, storage items, hygienic or toilet articles, and other household articles of plastics, sold in retail packing; trunks, suitcases, vanity-cases, executive-cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, insulated food or beverages bags, toilet bags, rucksacks, handbags, shopping bags, wallets, purses, map-cases, cigarette-cases, tobacco-pouches, tool bags, sports bags, bottle-cases, jewellery boxes, powder boxes, cutlery cases and similar containers, of leather or of composition leather, of sheeting of plastics, of textile materials, of vulcanised fibre or of paperboard, or wholly or mainly covered with such materials or with paper, put up for retail sale; footwear of all types; bathroom accessories and bath items; sanitary ware including taps, showerheads, fittings, mixers, valves and other washroom accessories and fixtures, sold in retail packing; crockery items sold in retail packing; car and automobile accessories sold in retail packing; milk, fat-filled milk, preparations suitable for infants, and other products of milk, sold in retail packing; preparations for use on the hair sold in retail packing; and several other items.
DG Tax Policy Office Najeeb Memoon and senior FBR officials, including Dr Hamid Ateeq Sarwar, gave a technical briefing to reporters after the announcement of the budget for 2026-27 at the FBR’s headquarters on Friday. The enforcement and administrative measures will fetch an additional Rs400 billion, while taxation measures will bring an additional revenue of Rs250 billion in the next fiscal year. With tax collection of Rs13,000 billion by June 30, 2026, the FBR will approach nearly Rs14,600 billion with the help of nominal growth (real GDP growth of 4 percent plus inflation of 8.2 percent) in the next budget. The remaining Rs650 billion will be materialised through a combination of taxation, enforcement and administrative measures. The FBR expanded the list of the Third Schedule of GST and brought in 21 items, whereby branded and packaged items of Fast-Moving Consumer Goods (FMCG)—including electronics and several other items—will be taxed at retail prices. On the revenue measures side, the FBR imposed a 5 percent withholding tax on social media platforms, imposed FED at Rs16,500 per kg (up from Rs10,000) on e-liquid for electronic cigarettes, imposed FED on naphtha, solvent oil, and turpentine, imposed FED on luxury EVs and other luxury vehicles, and imposed FED on base oil and base lubricating oil in addition to lubricating oil. Income tax rates for salaried taxpayers have been reduced through the restructuring of tax slabs. Additional intermediate slabs have been introduced, and the threshold for the maximum tax rate of 35 percent has been increased from Rs4.1 million to Rs7 million. The tax rate for income from Rs0.6 million to Rs1.2 million remains unchanged at 1 percent, while for income from Rs1.2 million to Rs2.2 million, the tax rate remains at 12 percent. For the tax slab of Rs2.2 million to Rs3.2 million, the tax rate has been reduced from 23 to 20 percent. For the slab of Rs3.2 million to Rs4.1 million, the tax rate has been reduced from 30 to 25 percent. For the income slab of Rs4.1 million to Rs5.6 million, the tax rate has been reduced from 35 to 29 percent. The FBR introduced two new slabs: for income earners from Rs5.6 million to Rs7 million, the tax rate has been reduced from 35 to 32 percent, while for income earners above Rs7 million, a tax rate of 35 percent has been imposed. The FBR has also abolished surcharges on the salaried class.
The Super Tax has been abolished for six categories having income of up to Rs500 million. The rate has been reduced from 10 percent to 8 percent for persons having income of more than Rs500 million. However, these concessions do not apply to the banking, exploration and production (E&P) and fertiliser sectors. The government has abolished deemed income from immovable property following a superior court verdict.
The advance tax rates under Sections 236C (which ranged from 4.5 to 5.5 percent) and 236K (which ranged from 1.5 to 2.5 percent) on the sale and purchase of property have been reduced and converted into lower flat rates of 2.75 percent and 1.5 percent respectively to encourage documentation and facilitate transactions in the real estate sector. However, the tax rate on real estate transactions for non-filers will remain unchanged.
Tax collection on export proceeds, which included 1 percent withholding tax and 1 percent advance tax, has been reduced from 2 percent to 1.25 percent to encourage exports. Advance tax on foreign remittances made through debit, credit and prepaid cards has been reduced from 5 percent to 0.5 percent. Tax deducted on e-commerce transactions shall be adjustable for sellers having turnover exceeding Rs200 million.
Advance tax on payments for foreign television plays and advertisements has been withdrawn. 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. These entities already had approval under Section 2(36) of the Ordinance and exemption as available in Clause 66 of Part I of the First Schedule. This exemption facilitates the entities as they are not required to obtain exemption from the commissioner every year.
Capital Value Tax (CVT), which was previously charged on foreign movable and immovable assets of resident Pakistanis, has now been abolished. The turnover threshold for exemption from withholding tax for small traders has been increased from Rs100 million to Rs200 million. Funds and eligible non-profit organisations meeting prescribed conditions shall be entitled to issuance of exemption certificates for the whole financial year. The law has been clarified regarding the determination of the cost basis of inherited immovable property and the tax treatment of family settlements after death. On the revenue side, a tax has been imposed on life insurance schemes. A withholding tax regime has been introduced on revenues received by digital content creators and social media influencers from platforms such as YouTube, Facebook, Instagram, and TikTok, with banking and financial institutions required to deduct tax on such receipts.
The withholding tax structure on services has been revised. The rate for specified services such as courier, logistics, hotel, transport, air cargo, car rental, HR outsourcing and oil drilling has been enhanced from 6 to 7 percent, while independent professionals have been separately categorised, and rates for certain other services have been rationalised. The reduced minimum tax rate for distributors, dealers, sub-dealers and wholesalers of specified sectors has been increased from 0.25 percent to 0.5 percent, subject to prescribed documentation requirements.
Banking companies and Electronic Money Institutions shall electronically provide information relating to high-value deposits and withdrawals for algorithmic comparison with tax declarations to identify significant mismatches and broaden the tax base. The Board has been empowered to require specified persons to install electronic resources and integrate business systems for real-time reporting of transactions, with failure to comply potentially resulting in disallowance of expenditure.
Penalties for non-compliance, including failure to furnish statements, integration failures, late inclusion in the Active Taxpayers List (ATL) and incorrect withholding tax claims have been enhanced to improve deterrence and adjust for inflation. The exclusion available from enhanced tax rates applicable to non-ATL persons on capital gains from listed securities has been withdrawn to encourage tax compliance and return filing.
The FBR reduced Federal Excise Duty on foreign travel, reduced FED on the import of acetate tow from Rs44,000 to Rs10,000, removed FED on WHO standard-compliant sports and electrolyte replenishing beverages and granted exemption to strategic imports of vehicles for the SCO summit and counterterrorism operations. The FBR extended the exemption on the import of CKD kits for electric vehicles for one year until June 30, 2027. Finally, the government abolished CVT on foreign assets from 1 percent to zero, abolished the “pink tax” on women’s healthcare products and contraceptives by reducing the rate from 18 percent to zero, granted sales tax exemption to the shipping industry and exempted sales tax on imports for the upgrading of brownfield refineries from 18 percent to zero.
