Pakistan Proposes Tax Reforms in Federal Budget for 2025-26

Strategic Insights -

The Pakistani government has announced significant tax reforms in the federal budget for 2025-26, aiming to increase revenue and bring various sectors of the economy into the tax net. The budget proposals include reducing the "Super Tax" rate for corporations, cutting withholding tax rates on property purchases, and introducing a 5% hike in the tax rate on interest income. Additionally, high-income pensioners will be brought under the tax net, while those receiving low and middle-range pensions will be exempted. The government has also introduced reforms to the pension scheme, including discouraging early retirement and linking pension increases to the Consumer Price Index (CPI).

Key Takeaways:

  • The government has proposed to reduce the "Super Tax" rate by 0.5% for corporations with an annual income of Rs200 million to Rs500 million.
  • The withholding tax rate on property purchases has been reduced, with rates decreasing from 4% to 2.5% in the first slab, 3.5% to 2% in the second slab, and 3% to 1.5% in the third slab.
  • The federal government has decided to promote mortgage financing by announcing tax credits for houses up to 10 marlas and flats up to 2,000 square feet.
  • Digital production tracking is being introduced for cement, fertiliser, beverages, and textiles.
  • An artificial intelligence-based system is being introduced for sales and income tax.
  • Revenue from the sugar sector increased by 47%, 390,000 non-filers were identified, and Rs9.8 billion in fake refund claims was blocked.
  • From July 1, the 800-column return will be simplified to a simple format requiring only 7 basic pieces of information.
  • Agreements with Independent Power Producers (IPPs) have been revised, resulting in savings of Rs3,000 billion.
  • Losses of power distribution companies have been reduced by Rs140 billion.
  • The price of electricity has been reduced by more than 31%.

Statistics:

  • The government estimates the tax gap at Rs5.5 trillion.
  • The tax rate on interest income will increase from 15% to 20%.
  • E-commerce businesses will be required to submit their monthly transaction data and tax reports to the relevant authorities.
  • A 25% tax will be imposed on income earned through debt.
  • Imports of solar panels will be taxed at a rate of 18%.

Sources:

  • Islamabad News ( exact date not specified )
  • Exact date not specified