ICMA Pakistan Welcomes Government's Adoption of Tax Reforms in Federal Budget 2025-26

Strategic Insights -

The Government of Pakistan has taken a constructive step towards a more balanced, inclusive, and forward-looking tax system by adopting several key recommendations from ICMA Pakistan in the Federal Budget 2025-26. The proposals, aimed at broadening the tax base, reducing the burden on salaried individuals, and tapping into emerging economic sectors, were developed by the Institute's Research and Publications Department and submitted to the Federal Board of Revenue (FBR) by the official deadline of January 31, 2025. A number of these ICMA proposals have been adopted in the budgetary measures announced by Finance Minister Mr. Muhammad Aurangzeb in his budget speech on June 10, 2025.

Key Takeaways:

  • The Government has introduced a withholding tax on high-value pensions, as proposed by ICMA, to tax affluent pensioners while protecting low- and middle-income retirees.
  • A phased taxation regime to support the electric vehicle (EV) industry has been adopted, encouraging a gradual shift to cleaner technologies without imposing high initial tax burdens on the nascent EV sector.
  • The recommendation to tax cross-border online transactions has been reflected in the imposition of tax under Section 6A of the Finance Bill on digitally ordered goods and services.
  • The growing market of paid digital subscriptions, such as streaming services, has come under the tax net in line with ICMA's suggestions.
  • The withholding tax rate on specified services has been increased, while ICMA's call for exemptions for low-income users and minors was also considered to ensure equitable treatment.
  • To support sustainable development, ICMA's recommendation for incentivizing renewable energy investments has been addressed through the continuation of zero customs duty on items used in solar power and other clean energy technologies.
  • The exemption supports investment in green infrastructure.
  • The Government has demonstrated its willingness to adopt innovative and underutilized revenue streams, a core theme of ICMA's proposals.
  • ICMA views this as a positive shift away from over-reliance on the salaried class, which continues to contribute the highest share of direct taxes in Pakistan.

Statistics:

  • The withholding tax on high-value pensions aims to tax affluent pensioners while protecting low- and middle-income retirees.
  • The phased taxation regime to support the EV industry encourages a gradual shift to cleaner technologies without imposing high initial tax burdens on the nascent EV sector.
  • The new tax framework on cross-border online transactions ensures that offshore sellers participate fairly in the domestic tax system.
  • The 5% tax on payments made to social media platforms targeting Pakistani users reflects ICMA's recommendation to tax foreign digital advertisements.
  • The exemption of low-income users and minors from withholding tax rates ensures equitable treatment.
  • The continuation of zero customs duty on items used in solar power and other clean energy technologies supports investment in green infrastructure.

Sources:

  • ICMA Pakistan's Press Release, dated June 10, 2025
  • Federal Board of Revenue (FBR)
  • Finance Minister Mr. Muhammad Aurangzeb's budget speech on June 10, 2025
  • ICMA Pakistan's Research and Publications Department
  • Section 6A of the Finance Bill, 2025