Major package of tax and customs tariff reforms unveiled

ISLAMABAD: The government Friday announced major package of tax and customs tariff reforms, offering relief to higher income salaried individuals and businesses through the rationalization of income tax, sales tax and customs duties, while promoting documentation, digital compliance and investment.

Under the Finance Bill 2026, the tax policy measures are designed to ease the burden on households and enterprises while giving top priority to major sectors/industries including real estate, IT, shipping, energy and corporate sector for promoting documentation, digital compliance and investment.

As per Finance Bill 2026, the income tax slabs have been simplified, super tax rationalized, excise duties cut, and sales tax exemptions widened to cover magazines, shipping and refineries, while removing levies on deemed income and the tampon tax.

Under the Finance Bill 2026, the government abolished capital value tax on foreign movable and immovable assets of resident Pakistanis.

The law has been clarified regarding determination of cost basis of inherited immovable property and tax treatment of family settlements after death.

On foreign payments through cards, advance tax on foreign remittances made through debit, credit and prepaid cards has been reduced from 5 percent to 0.5 percent. Moreover, tax deducted on ecommerce transactions shall be adjustable for sellers having turnover exceeding Rs200 million.

A tax credit equal to 10 percent of the investment made in electronic resources for integration with FBR’s computerized systems has been introduced to facilitate documentation and digital compliance. Advance tax on payments for foreign television plays and advertisements has been withdrawn.

The government has proposed exemption on income of qualifying Special Purpose Vehicles established for asset-backed securitization to facilitate capital market development. The turnover threshold for exemption from withholding tax for small traders has been increased from Rs100 million to Rs200 million.

It has been proposed that Funds and eligible non-profit organizations meeting prescribed conditions will be entitled to issuance of exemption certificates for the whole financial year. Income tax exemption has been extended to specified charitable and welfare organizations including Pakistan Red Crescent Society, Shaheen Foundation, Bahria Foundation, SIUT and Dawat-e-Hadiya.

Under the Finance bill 2026, the government has introduced several excise duty concessions, including a reduction in Federal Excise Duty (FED) on foreign travel and a sharp cut in FED on acetate tow imports from Rs44,000 to Rs10,000.

The duty on WHO compliant sports and electrolyte replenishing beverages has been withdrawn, while exemptions have been granted for strategic vehicle imports linked to the upcoming SCO summit and counterterrorism operations. The one year exemption on import of CKD kits for electric vehicles has further been extended until June 30, 2027.

The budget also brings wide ranging changes in sales tax, granting sales tax exemption to magazines and extending relief on the import of CKD kits for electric vehicles until June 30, 2027.

The scope of exemption on aircraft parts for import and lease by PIACL has been expanded, while exemptions have been introduced for strategic imports tied to the SCO summit and counterterrorism, as well as for capital goods needed to upgrade and overhaul refineries.

At the same time, the exemption on family planning devices has been withdrawn and the so called “tampon tax” abolished. Sales tax relief has also been offered to boost strategic investment in shipping, alongside the addition of a new entry in the Sixth Schedule and extension of the sunset date for electric vehicles to June 30, 2027.

The Federal Excise Duty on business class international travel has been drastically reduced in the Finance Bill 2026, with the levy on tickets to North, Central and South America cut to Rs50,000 from Rs350,000.

Rates on tickets to the Middle East and Africa have been lowered to Rs25,000 from Rs105,000, while business class travel to Europe now attracts Rs40,000 instead of Rs210,000. The same reduction applies to tickets for the Far East and Australia, where the duty has been brought down to Rs40,000 from Rs210,000.

Copyright Business Recorder, 2026