The federal government is preparing comprehensive tax reforms worth approximately Rs. 600 billion for the upcoming 2025-26 budget, according to analysis by Topline Securities. These measures target various sectors including digital content creators, pensioners, and essential commodities.
Digital Economy Taxation
The government proposes implementing a 3.5% tax on social media earnings from platforms including YouTube and TikTok. This digital income tax is projected to generate Rs. 52.5 billion in revenue, marking a significant step toward formalizing Pakistan’s growing digital economy.
Pension Tax Reforms
High-earning pensioners face new tax obligations under the proposed budget. The government is considering imposing a 2.5% to 5% tax on monthly pensions exceeding Rs. 400,000. This measure could yield between Rs. 20-40 billion in additional revenue.
The timing is notable given that pension expenditures have already reached Rs. 673 billion this fiscal year and are projected to cross the Rs. 1 trillion threshold.
GST Alignment and Market Pricing
Goods and Services Tax rates on selected items will be recalibrated to reflect actual market prices using Pakistan Bureau of Statistics data. A prime example is sugar, where GST is currently calculated at Rs. 72.22 per kilogram despite market prices of Rs. 150. This realignment could generate Rs. 70-80 billion in additional revenue.
Federal Excise Duty Increases
The processed food sector faces significant tax increases, with a proposed 20% hike in federal excise duty on items like snacks and biscuits. The government aims to reach a 50% duty rate by 2029. Cigarette excise duties are also under review for potential increases.
Eliminating Non-Filer Status
A new bill seeks to eliminate the non-filer category entirely. Under the proposed changes, individuals without tax filing status would be prohibited from purchasing vehicles and property. The implementation of Section 114C of the Income Tax Ordinance is expected, though threshold adjustments may be considered.
Energy Sector Levies
The petroleum sector faces new levies, including a potential petroleum development levy on furnace oil. Additionally, a Rs. 5 per liter carbon tax increase on petrol and diesel could generate Rs. 35-80 billion, depending on the final rate structure for furnace oil.
Retail Sector Compliance
To meet International Monetary Fund targets, the government must collect Rs. 295 billion from retailers by December 2025. Advance taxes on distributors may be increased to achieve this ambitious goal.
Agricultural Input Taxes
Following IMF recommendations, federal excise duty on fertilizers and pesticides could increase by 5%, potentially generating over Rs. 30 billion in additional revenue.
These proposed measures reflect the government’s strategy to broaden the tax base while addressing fiscal targets set under the IMF program. The budget’s final form will depend on stakeholder consultations and economic conditions leading up to its presentation.