Pakistan Budget 2025–26: New Tax Policies & What They Mean for Your Business
Discover the latest tax changes in Pakistan’s 2025–26 budget. Learn how income tax, GST, and business levies are evolving—and what it means for you.
Introduction
The Government of Pakistan unveiled the federal budget for the fiscal year 2025–26 amid growing economic challenges and pressure from international lenders like the IMF. The budget, estimated at PKR 18.9 trillion, aims to strike a balance between fiscal responsibility and economic growth. However, it brings with it several tax reforms that are set to reshape the landscape for individuals, businesses, and investors alike.
For entrepreneurs, business owners, freelancers, and overseas Pakistanis, understanding the recent tax changes is not optional—it’s essential. This article dives deep into the key highlights of the budget, focusing on taxation, its implications for different sectors, and strategic advice to remain compliant and optimized for growth.
Major Highlights of the 2025–26 Budget
- Total Budget Size: PKR 18.9 trillion
- Fiscal Deficit Target: 5.9% of GDP
- Defense Allocation: PKR 2.1 trillion
- Development Expenditure: PKR 1.3 trillion
- Subsidies: PKR 1.2 trillion (focused on energy and food)
- Revenue Target: PKR 12.3 trillion (through FBR and non-tax revenues)
The government aims to meet IMF conditions by increasing tax collection, reducing subsidies, and formalizing the economy.
New Tax Changes at a Glance
- Sales Tax Increase: Standard GST raised from 18% to 19%. Specific goods and services are now taxed at up to 22%.
- Income Tax Slabs Revised:
- Annual income above PKR 2.4 million to be taxed at higher rates.
- Additional surcharge of 5% on income exceeding PKR 10 million.
- Capital Gains Tax (CGT):
- 15% flat CGT on property sales within 3 years.
- Tiered structure for holding periods exceeding 3 years.
- Withholding Tax on Freelancers and IT Exports:
- 1.5% withholding tax on IT exports above $50,000 per year.
- Real Estate Taxation:
- Introduction of property valuation through FBR tables.
- Tax on deemed rental income on second and subsequent properties.
- Luxury Tax:
- Additional levy on imported vehicles above 1800cc and luxury items.
Sector-Wise Impact Analysis
E-commerce & IT Sector
- The 1.5% withholding tax on IT exports has raised concerns among freelancers and software houses.
- Exporters are now required to register with the Pakistan Software Export Board (PSEB) to qualify for exemptions or reduced rates.
Retail & Wholesale
- Increased GST has directly impacted prices of fast-moving consumer goods (FMCG).
- Digital invoicing is now mandatory for retailers with a turnover above PKR 10 million.
Import/Export Businesses
- Enhanced scrutiny on under-invoicing.
- Customs duty rationalized but increased regulatory duties on luxury imports.
Real Estate & Construction
- High-impact changes including CGT, deemed rental tax, and revised valuation tables.
- Developers must now disclose sources of project funding.
Freelancers & Overseas Pakistanis
- Overseas remittances remain tax-exempt.
- Freelancers earning in foreign currency must maintain digital records and receive payments via banking channels.
How This Budget Affects Small and Medium Enterprises (SMEs)
- Higher compliance costs due to digital documentation and invoicing.
- Increased audit risk for non-filers.
- Opportunity to benefit from tax credits by going digital and registering with FBR.
- SME-specific loan schemes announced, but tied to tax compliance.
Reactions from Industry Experts
- Pakistan Business Council: Appreciated attempts to broaden tax net but criticized sudden changes.
- Tax Consultants: Warned that small businesses are unprepared for digitization requirements.
- Chambers of Commerce: Called for a reduction in indirect taxes to ease inflation.
Strategic Advice for Business Owners
- Stay Compliant: File timely returns, maintain digital invoices, and register with relevant bodies.
- Hire a Tax Consultant: Avoid audit triggers and make use of available deductions.
- Plan Property Transactions: Consider CGT timelines and new valuation methods.
- Digital is Mandatory: Whether retail, IT, or services—e-invoicing is no longer optional.
Government’s Tax Reform Objectives
- Broaden the Tax Net: Focus on previously undocumented sectors.
- Reduce Cash Economy: Encourage digital payments and bank transactions.
- Fulfill IMF Conditions: Stabilize macroeconomic indicators.
- Shift to Progressive Taxation: Higher burden on high-income individuals and luxury consumption.
Future Outlook & What to Expect
- More mini-budgets likely in case of revenue shortfalls.
- Upcoming FBR automation initiatives to integrate NADRA, banks, and real estate registries.
- Focus on AI-based tax audits and behavioral profiling.
- Crackdown on luxury lifestyle disclosures via social media and banking data.
Conclusion
The 2025–26 budget presents both challenges and opportunities. While the tax burden has increased in some sectors, the government’s push toward formalization can open new avenues for growth—especially for compliant businesses.
To navigate these changes smoothly, it’s crucial to stay informed, get expert advice, and align your financial strategy with the evolving tax laws.
Need help with tax planning or compliance? Contact our expert tax consultants today to stay ahead of the curve.
