ISLAMABAD: The Pakistan government has proposed tax relief measures in the FY2026-27 budget, aiming to support economic growth while strengthening tax collection.
Key proposals include lower income tax rates for salaried individuals, reduced taxes on property transactions, relief for exporters and overseas card users, and the abolition of certain taxes on overseas assets and immovable property.
At the same time, the government has introduced new taxes on social media earnings, increased duties on selected products, tightened sales tax enforcement, and revised withholding tax rules to broaden the tax base and improve revenue generation.
Income tax reduced
The government has proposed to reduce income tax for salaried individuals.
- No tax on annual income up to Rs600,000
- 1% on the amount exceeding Rs 600,000 up to Rs1.2 million
- Rs 6,000 + 11% of the amount exceeding Rs1.2 million for incomes up to Rs2.2 million
- Rs116,000 + 20% of the amount exceeding Rs2.2 million for incomes up to Rs3.2 million
- Rs316,000 + 25% of the amount exceeding Rs3.2 million for incomes up to Rs4.1 million
- Rs541,000 + 29% of the amount exceeding Rs4.1 million for incomes up to Rs5.6 million
- Rs976,000 + 32% of the amount exceeding Rs5.6 million for incomes up to Rs7 million
- 424 million + 35% of the amount exceeding Rs7 million for annual incomes above Rs7 million
Under the revised tax structure, the highest income tax rate of 35% will now apply to annual incomes exceeding Rs7 million, compared with the previous threshold of Rs4.1 million, providing relief to middle- and upper-middle-income taxpayers.
Income tax on property
It has been proposed to abolish the deemed income tax under Section 7E on immovable property in Pakistan.
Advance tax reduced on purchase and sale of property
The government has proposed significant reductions in property transaction taxes as part of its efforts to stimulate activity in the real estate sector.
Under the revised tax structure, the withholding tax on property sellers has been reduced to a flat rate of 2.75 percent, replacing the previous rates ranging from 4.5 percent to 5.5 percent.
Similarly, the tax on property buyers has been streamlined to a uniform 1.5 percent rate, down from the earlier range of 1.5 percent to 2.5 percent.
Reduction in super tax
The government has proposed to abolish the super tax on corporate income of up to Rs500 million and reduce the rate from 10 percent to 8 percent for income exceeding that threshold. However, the concession will not apply to the banking, fertilizer, and certain energy and natural resources sectors.
Exporters’ tax reduced
It is also proposed to reduce the overall deduction on export income from 2% to 1.25%.
Tax on overseas card payments reduced
The government has proposed reducing the advance tax on overseas payments made through debit, credit, and prepaid cards from 5 percent to 0.5 percent.
The move is expected to provide significant relief to individuals making international purchases, hotel bookings, air ticket payments and other online transactions abroad.
IT exporters
It is proposed to extend the 0.25% concessional rate for exporters of IT and IT-related services until tax year 2029.
CVT on overseas assets abolished
The government also proposed to abolish the Capital Value Tax levied on movable and immovable assets of resident Pakistanis abroad.
Where taxes have been increased or newly imposed
Social media and YouTube income
A new withholding tax system is being introduced on income received from YouTube, Facebook, Instagram, TikTok, etc. The bank or financial institution will deduct tax on the receipt of the money.
Distributors and Wholesalers
The government suggested doubling the minimum tax rate for distributors, dealers and wholesalers operating in specified sectors, increasing it from 0.25 percent to 0.5 percent. The measure is aimed at enhancing tax collection from commercial supply chains and broadening the revenue base.
Withholding tax on services
It has been proposed to revise withholding tax rates on various services, introducing higher rates for certain categories while creating a separate tax category for independent professionals. The changes also include a restructuring of withholding tax rates across different service sectors to streamline the taxation framework.
E-liquid for e-cigarettes
The government has also suggested increasing the federal excise duty on e-liquid used in e-cigarettes from Rs10,000 per kilogram to Rs16,500 per kilogram. The measure is expected to raise revenue while increasing the cost of vaping products in the country.
Luxury vehicles
A new or additional federal excise duty is proposed on luxury electric vehicles and other imported luxury vehicles.
Federal excise duty on certain petroleum products
It is proposed to impose a federal excise duty on certain petroleum products on naphtha, solvent oil, turpentine, base oil and base lubricating oil.
Important changes in sales tax
Relief
- Exemption of magazines from sales tax
- Tax on women’s sanitary tampons eliminated
- Exemption on CKD of electric vehicles till June 30, 2027
- Exemption on imported capital goods for the upgradation of refineries
- Exemption on certain strategic investments in the shipping sector
- Scope of exemption on certain aircraft parts expanded
Steps to increase tax or tighten collection
- Sales tax will be collected at retail/consumer price by including more items in the Third Schedule
- Toll manufacturers will withhold sales tax from unregistered buyers
- Scope of withholding sales tax from unregistered persons by AOPs and individuals will increase
- If a manufacturer sells imported raw materials in the same condition without processing, 3% value addition tax will be collected
- A retailer with an annual turnover of Rs 200 million or more will be considered a Tier-1 retailer
Major reduction in customs duties
The budget proposes a major reduction in customs duties on imported raw materials and industrial inputs:
- 20% duty to 15% or 10% on various items
- 15% and 10% to 10% or 5%
- 5% to zero on certain items
- This reduction is on about 92 tariff lines
Additional Customs Duty
- 6% to 4% on 449 items
- 4% to 2% on 2,107 items
- 2% to zero on 569 items
