The upcoming Finance Bill (2025-26) is set to introduce significant amendments to withholding tax (WHT) regime, as the government seeks to generate additional revenue in the fiscal year 2025-26 budget. Sources indicate that these changes will further widen the tax differential between filers and non-filers, reflecting the continued heavy reliance on WHT for revenue collection.
Currently, withholding taxes, particularly those collected in sales tax mode, constitute over 70 percent of Pakistan’s direct tax collection, highlighting their crucial role in the national exchequer.
Proposed Increases in Withholding Tax Rates
Several proposals are currently under consideration to adjust WHT rates:
- Interest Income: One key proposal involves raising the tax rate on interest income, which could impact individuals and entities earning returns from financial instruments.
- Cash Withdrawals (Non-Filers): The Federal Board of Revenue (FBR) has specifically proposed a significant increase in withholding tax on cash withdrawals from banks by non-filers. The rate is expected to rise from the current 0.6 percent to a range of 1 to 1.2 percent, further disincentivizing cash transactions for those not registered with the tax authorities.
- Imports: A proposal to impose a 1.5 percent withholding tax on the value of imports is also being considered. This measure would apply to various imported goods, potentially impacting import costs.
- Supplies, Services, and Contracts: Other proposals under consideration include a general raise in withholding tax rates on various supplies, services, and contracts, which would affect a wide range of business transactions.
Rationalization for Immovable Properties
In a move aimed at facilitating the real estate sector, the rates of Withholding Tax on immovable properties are expected to be rationalized in the upcoming budget. These changes, anticipated to come into effect from July 1, 2025, are designed to ease the burden on both buyers and sellers of real estate, potentially promoting more transactions within the documented economy.
These proposed amendments underscore the government’s strategy to enhance tax collection through modifications to the WHT framework, particularly by creating a more pronounced distinction in tax rates for active taxpayers versus non-filers.
