Pakistan Budget 2025-26 Tax Reforms: What You Must Know

Pakistan’s Budget 2025–26: Landmark Tax Reforms Shaping the Future

The Federal Budget 2025–26, introduced on June 10, 2025, brings sweeping tax measures aimed at modernization, revenue expansion, and compliance improvements. These reforms address digital economy taxation, non-filer accountability, and broaden the tax base to under-taxed sectors. In this blog, we break down the top priorities, impact on stakeholders, and what it means for taxpayers and businesses.

1. Expanding the Tax Net: Digital, Agriculture & Real Estate Inclusion

Digital Economy Taxation: Closing Loopholes, Boosting Compliance

Digital Presence Proceeds Tax Act, 2025 introduces a 5% tax on foreign e-commerce revenues, withheld at source by payment gateways and banks RegFollower.
E-commerce platforms must now collect 18% sales tax on applicable domestic transactions RegFollower.

These measures enhance capture of digital economic activity and promote fairness in revenue contributions.

Broadening the Tax Base in Traditional Sectors

Authorities are pushing to bring agriculture, real estate, and retail trade into the formal tax net—previously under-taxed sectors crucial for expanding revenue Business Recorder The Express Tribune.

Tax Reductions to Spur Growth

Corporate tax is proposed to reduce to 28% in FY 2025–26, with a gradual decline to 25% over five years Business Recorder Zameen.
Similarly, the sales tax rate is expected to shrink from 17% to 15% over time Business Recorder.

These reforms aim to align Pakistan with regional economies and encourage investment.

2. Reforming Compliance: Tax Fraud, Non-Filer Penalties & Digital Invoicing

Tougher Measures Against Tax Evasion

Fines for POS-based tax fraud have increased tenfold—from ₨500,000 to ₨5 million NetMag Pakistan.
Non-filers could face wide-ranging restrictions: bans on purchasing vehicles, properties, stock investments, and even international travel (except Hajj/Umrah) NetMag Pakistan.

Strengthening Invoice and Documentation Integrity

FBR can now arrest fraudsters involved in fake invoicing falsification if amounts exceed ₨50 million, subject to committee approval News Alert.

Push for Digital Invoicing and e-Filing

As of April 22, 2025, FBR mandates digital e-invoicing for all registered entities; extensions pushed to June 2025 Wikipedia.
E-filing via the Tax Asaan app and Iris portal amplifies access Wikipedia.

These steps modernize tax administration, reduce errors, and expand reach.

3. Modern Levies: Carbon Tax and Withholding Adjustments

Carbon Levy on Fuel

A carbon levy of ₨2.50 per liter has been introduced on all petroleum products to both uplift revenue and address environmental concerns News Alert.

Withholding Tax Overhauls

Withholding tax on services increased from 11% to 15%, with sector-specific special rates of 6–8% RegFollower.
Profit on debt tax lifted from 15% to 20%, and interest income tax raised to 20% RegFollower.

These changes boost government receipts while incentivizing compliance in formal sectors.

4. Salaried Individuals: Slab Restructuring & Pension Tax

New income tax slabs for salaried class (Budget 2025–26):

₨0 – 600,000: Exempt
₨600,001 – 1,200,000: 1%
₨1,200,001 – 2,200,000: Fixed ₨6,000 + 11%
₨2,200,001 – 3,200,000: Fixed ₨116,000 + 23%
₨3,200,001 – 4,100,000: Fixed ₨346,000 + 30%
Above ₨4,100,000: Fixed ₨616,000 + 35% News Alert.

Additionally, a 5% tax is now imposed on pension income exceeding ₨10 million annually, previously untaxed News Alert.

5. Strategic Recommendations from Industry Bodies

OICCI’s Vision for Tax Reform

Suggested cutting the corporate tax to 28%, ending at 25% within five years Business Recorder+1 The Express Tribune.
Advocated gradual reduction of sales tax to 15% and phasing out Super Tax Business Recorder+1 The Express Tribune.
Emphasized inclusion of under-taxed sectors and resolving pending tax refunds to boost investor confidence Business Recorder+1.

SAI & PBC’s Calls for Structural Reform

SAI urged separation of tax policy from collection, capping business income tax at 25%, and repealing Super Tax The Express Tribune.
PBC emphasized gradual Super Tax removal, reduced corporate tax to 25%, and formation of a National Tax Authority (NTA) for streamlined compliance Profit by Pakistan Today AllpK Taxes.

6. Context: Budget Goals, IMF & Economic Stability

The budget anticipates 4.2% GDP growth (up from 2.7%), backed by a $7 billion IMF program, relying on revenue growth via broadened tax base Reuters.
Engagement with IMF continues, with a second review due in the latter half of 2025 The Times of India.
A separate $20 billion World Bank package supports structural reforms, including taxation restructuring Financial Times.

Budget 2025-26 Pakistan: Benefits for ...

Why These Reforms Matter – Implications for You

Stakeholder	Impact of Budget 2025–26 Reforms
Salaried Individuals	Lower middle-income slabs → reduced tax burden; high earners face higher brackets and pension tax.
Small Business & Retailers	Digital tax compliance increases; risk of penalties for non-filing.
Agriculture & Real Estate	Better exposure to tax requirements; need for strategic planning.
E-commerce Platforms	Obligated to collect sales tax; foreign providers face withholding tax.
Tax Professionals	Increasing demand for advisory on digital invoicing, non-filer status, and new slabs.
Government & Revenue Bodies	Enhanced revenue potential via broader compliance and digital enforcement.

Best Practices: What Individuals and Businesses Should Do

Register or “become filer”: Avoid restrictions and higher penalties.
Update digital invoicing: Align with FBR’s e-invoicing mandates.
Adapt bookkeeping: Track digital and traditional transactions accurately.
Plan tax strategy: Use new slab insights, pension tax, and withholding rules.
Consult experts: For guidance on non-filer risks and incentive optimization.

About Ali Law Associates

Ali Law Associates specializes in taxation matters in Lahore, offering expertise in digital compliance, tax planning, and dispute resolution. Whether you’re filing as a salaried individual or business, we ensure your tax affairs are secure and efficient.
Contact us today for expert tax support. (Internal link)

Conclusion: A New Era in Pakistan’s Tax Landscape

The Federal Budget 2025–26 ushers in an era of digital inclusion, transparency, and accountability in Pakistan’s tax system. From e-invoicing mandates to digital economy taxes and reforms in the retail, agriculture, and salaried sectors, the implications are profound. Businesses and individuals must adapt: embracing compliance, restructuring strategy, and leveraging professional guidance.

These reforms not only aim to shore up revenues but also modernize tax administration—laying a foundation for sustainable growth.