Federal Budget 2026-27: ICMAP proposes new taxes, EV incentives and revenue reforms

KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMAP) has released its proposals for the upcoming Federal Budget 2026–27. The recommendations focus on broadening the tax base, promoting green initiatives, formalizing the digital and informal economy, and enhancing revenue across multiple sectors.

1. New Revenue Initiatives: ICMAP proposed introducing BIM, Green Incentives, and the Building Safety Levy (BSL) to expand revenue sources.

The institute also recommended implementing an Additional Residential Property Tax (ARPS) and imposing a Digital Services Tax on platform revenues.

Pakistan’s housing market faces challenges from multiple-property ownership, speculative purchases, and rising urban property prices. The Federal Budget 2026–27 may introduce a 2% tax on additional residential properties, such as second homes or investment properties, valued at PKR 20 million and above. This tax will be payable by the buyer at the time of registration. First-time buyers and primary residences will be fully exempt. Buyers will be required to declare ownership of any other residential property. Taxing additional residential properties can help promote housing equity and discourage speculative property purchases.

Licensing and taxation of online and speculative gaming were suggested, along with a dedicated levy on corporate advertising spending.

Other measures include a one-time settlement for old tax disputes, a commercial utility levy via FBR data sharing, and a Financial Transaction Tax (FTT).

ICMAP also proposed launching a consumer sales tax lottery and introducing a windfall gains tax on sugar, oil & gas, and fertilizer sectors.

2. Climate and Green Taxation: To support environmental sustainability, ICMAP recommended providing property tax relief for EV charging operators.

High upfront costs are slowing Pakistan’s transition to electric vehicles (EVs), limiting investment and electricity-based transport revenue. The Federal Budget 2026–27 may provide a ten-year property tax and municipal levy reduction for operators of certified, grid-compliant public and commercial EV charging stations. Relief will be 80% for the first five years and 50% for the next five years, after which standard rates will apply. This measure is expected to encourage private investment, expand electricity consumption, increase formal commercial activity, and support Pakistan’s climate and EV adoption targets, generating additional government revenue over time.

The proposals also include a landfill disposal tax, a progressive carbon and pollution levy for large industrial units, and a green transport levy. Additionally, the institute suggested introducing a carbon market levy for businesses to incentivize environmentally friendly practices.

3. Urban and Transport Revenue Measures: ICMAP proposed implementing an annual vacant urban land tax and a one-time betterment levy (BTL) on land value gains. A distance-based urban road usage fee was also suggested to improve urban revenue collection.

4. Corporate and Financial Services Revenue: The proposals include offering incentives for FinTech and cryptocurrency, expanding tax and incentives for alternative financing instruments, and launching a Global Export Incentive (GEI). The institute also recommended introducing corporate services and VAT taxation.

5. Formalizing Digital and Informal Economy: ICMAP suggested introducing simplified micro-trader licensing and digital VAT.

Pakistan’s large informal retail sector and fast-growing digital services market generate significant economic activity but remain largely untaxed, creating a fiscal gap and opportunity for new revenue. The Federal Budget 2026–27 may introduce a Simplified Micro-Trader License, modeled on Tanzania’s Nguvu Kazi, offering presumptive taxation, simplified digital registration, and easy-to-file returns for small traders and self-employed individuals. In parallel, a 20pc VAT on digital services may apply to resident and non-resident providers supplying services to Pakistani consumers, with mandatory registration and local tax representation for foreign entities.

The institute also proposed a Simplified Micro-Entrepreneur Regime (SMER) to bring small businesses into the formal economy. Pakistan’s large self-employed and micro-business base operates mostly outside the tax net due to complex procedures and unpredictable liabilities. The Federal Budget 2026–27 may introduce SMER for businesses with annual turnover up to PKR 5 million, requiring a fixed monthly tax of PKR 2,000 covering income tax and minimum social security contributions. The scheme includes simplified digital registration, minimal documentation, quarterly confirmation filings, and access to basic social protection benefits such as health insurance and pensions, contingent on continued compliance.

6. Agriculture and Rural Income Revenue: For agriculture and rural income, ICMAP recommended creating a Farmer Income Stability Fund (FISF).

Pakistan’s farmers face frequent extreme weather and market volatility that reduce income stability and investment. The Federal Budget 2026–27 may introduce the FISF, allowing registered farmers to voluntarily deposit up to 3pc of annual net agricultural sales, with matching government contributions of up to 3pc plus annual bonuses. The fund will integrate crop/weather insurance, targeted price support, access to credit and digital marketplaces, and incentives for climate-smart practices, e.g., drought-tolerant seeds and efficient water use, while encouraging documentation and formalization of agricultural incomes.

The proposals also include implementing standardized agricultural income assessments to expand revenue in rural areas, offering four calculation options:

(a) Book-keeping for large/commercial farms;

(b) Inventory-based crop and input valuation;

(c) Flat/unit valuation per acre or crop for smallholders;

(d) Administrative valuation based on landholding, crop type, and regional benchmarks

Mandatory record-keeping will apply to large farms, while smallholders can opt for simplified methods. The framework formalizes farm incomes, enabling direct taxation and improving provincial and federal revenue collection.

7. Wealth and Luxury Tax Revenue: To enhance revenue from wealth and luxury, the institute proposed introducing a Capital Acquisitions Tax (CAT) on gifts and inheritances.

Taxing beneficiaries only on amounts above set thresholds: PKR 50?million tax-free for direct heirs (5pc on the excess), PKR 10?million for close relatives (10pc on the excess), and PKR 5?million for other beneficiaries (15pc on the excess).

The recommendations also call for expanding luxury and excise taxes.

Copyright Business Recorder, 2026