The Federal Board of Revenue (FBR) has announced sweeping changes to Pakistan’s tax regime in Budget 2025-26, offering marginal relief to salaried individuals while tightening enforcement on property transactions, digital commerce, and tax evasion.
The reforms, presented during a briefing with Business Recorder, signal the government’s push to widen the tax net and boost documentation through stricter compliance measures.
Salaried individuals will benefit from a reduction in the surcharge rate from 10% to 9%, along with nominal tax relief for those earning up to Rs. 3.2 million annually.
Teachers and researchers will continue to enjoy a 25% tax rebate until 2025.
However, pensioners will face new taxation rules, including a 5% flat tax on pension income exceeding Rs. 10 million for individuals below 70 years of age.
Additionally, the tax exemption on withdrawals from Voluntary Pension Schemes (VPS) has been withdrawn.
To support affordable housing, the budget introduces a tax credit for interest paid on low-cost housing loans, applicable to properties up to 2,500 sq. ft or flats up to 2,000 sq. ft. However, this credit can only be claimed once in a 15-year period.
Commercial property owners will now see minimum rent calculated at 4% of the FBR-assigned value, while businesses will no longer be able to adjust losses against property income in the same year.
Stricter rules will also apply to cash transactions, with 50% of expenses disallowed for payments exceeding Rs. 200,000 per invoice.
The budget places a strong emphasis on regulating the digital economy.
Foreign-operated online marketplaces will be subject to a 5% digital levy, while domestic digital transactions will face a final tax ranging from 0.25% to 2%.
Non-NTN holders will be barred from purchasing vehicles, property, or mutual fund units, and online platforms must now submit seller data to tax authorities.
To combat tax fraud, the FBR has introduced the concept of an “abettor,” targeting those who facilitate fraudulent transactions.
Enhanced enforcement measures include the authority to station officers at business premises, freeze bank accounts, and seal non-compliant properties.
Sales tax provisions have been strengthened to curb fraud, with new penalties for unauthorized invoices and expanded definitions of tax fraud.
The excise duty framework now allows for the immediate seizure of counterfeit goods, while service tax exemptions have been granted for transactions involving UN organizations and diplomatic missions.
The budget extends timelines for tax assessments and appeals, simplifies filing procedures, and reduces the audit exemption period from four to three years for previously audited taxpayers.
These reforms aim to streamline tax administration while improving transparency.
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