The federal government today presented its budget for the fiscal year 2025-26, proposing a mix of tax rate adjustments, new levies, and tightened enforcement measures aimed at boosting revenue collection and streamlining the tax system. Key announcements include reductions in super tax rates for certain income brackets, a new sales tax on solar panel imports, stringent Federal Excise Duty (FED) enforcement, and the introduction of a “Digital Presence” Levy for online vendors.
Super Tax Rates Adjusted for High-Income Earners
The budget proposes a reduction of up to 10 percent in super tax rates for individuals with annual taxable income up to Rs. 500 million for the next fiscal year, starting from tax year 2026. This move is expected to provide some relief to mid-tier high earners, although the government anticipates a negative revenue impact as a result.
For instance, taxable income between Rs. 200 million and Rs. 250 million, currently taxed at 2 percent, will see its rate reduced to 1.5 percent from tax year 2026 onwards. Similarly, the rate for income between Rs. 250 million and Rs. 300 million will drop from 3 percent to 2.5 percent. However, for income exceeding Rs. 500 million, the super tax rate remains unchanged at 10 percent from tax year 2023 onwards.
The proposed changes in tax rates for super tax under Division IIB, Part-I of the First Schedule are as follows:
| Income Under Section 4C | For Tax Year 2022 | For Tax Years 2023, 2024, and 2025 | For Tax Year 2026 and Onwards |
| Where income does not exceed Rs. 150 million | 0% of the income | 0% of the income | 0% of the income |
| Where income exceeds Rs. 150 million but does not exceed Rs. 200 million | 1% of the income | 1% of the income | 1% of the income |
| Where income exceeds Rs. 200 million but does not exceed Rs. 250 million | 2% of the income | 2% of the income | 1.5% of the income |
| Where income exceeds Rs. 250 million but does not exceed Rs. 300 million | 3% of the income | 3% of the income | 2.5% of the income |
| Where income exceeds Rs. 300 million but does not exceed Rs. 350 million | 4% of the income | 4% of the income | 3.5% of the income |
| Where income exceeds Rs. 350 million but does not exceed Rs. 400 million | 4% of the income | 6% of the income | 5.5% of the income |
| Where income exceeds Rs. 400 million but does not exceed Rs. 500 million | 4% of the income | 8% of the income | 7.5% of the income |
| Where income exceeds Rs. 500 million | 4% of the income | 10% of the income | 10% of the income |
New Sales Tax on Solar Panel Imports Approved
Finance Minister Muhammad Aurangzeb confirmed during his budget speech that the federal government has approved an 18 percent sales tax on solar panel imports for the federal budget 2025-26. This measure is part of the Revenue Division’s urgent efforts to collect up to Rs. 200 billion in additional tax revenue next fiscal year. While this new tax is a significant change, broader adjustments to better manage the grid and solar electricity production are expected through the Power Division in the coming weeks.
Stricter FED Enforcement with Track & Trace System
The government has also announced new rules under the Federal Excise Duty (FED) regime to tighten tax enforcement. According to the latest measures, any products or items found without original tax stamps, barcodes, or proper registration in the official Track & Trace System will be seized immediately. This stringent change is intended to curb tax evasion, ensure proper documentation, and promote transparency and accountability in the supply chain. Businesses are warned to comply with the new regulations or face swift action.
“Digital Presence” Levy Act, 2025 Introduced for Online Vendors
In a major move to bring digital transactions into the tax net, the federal government is introducing the “Digital Presence” Proceeds Levy Act, 2025. This new tax targets both foreign vendors (like Amazon, Facebook, Google, Temu) and local vendors (like Daraz and Pak Wheels) that supply digitally ordered goods and services to consumers in Pakistan.
Under the new Act, all banks, financial institutions, and payment gateways involved in making payments to foreign vendors will be required to deduct a 5 percent levy on the total amount paid at the time of outward remittance for both goods and services. These intermediaries must also submit detailed quarterly statements to the Federal Board of Revenue and suspend payments to non-compliant vendors. The tax will be charged even if a foreign vendor has no permanent establishment in Pakistan, provided it maintains a “significant digital presence” in the country (e.g., annual proceeds from Pakistani users exceeding Rs. 1 million, local data collection, billing in PKR, local delivery/logistics, after-sales services, or Pakistan-targeted marketing efforts).
The new law broadly defines digitally delivered services to include streaming platforms, cloud computing, software services, online learning, banking, consultancy, and architectural design. E-commerce covers transactions conducted over electronic networks for purchasing or selling goods and services, including online marketplaces and e-stores that facilitate digital transactions without taking ownership of the goods.
Non-compliance with filing or payment requirements under this Act will result in a penalty of Rs. 1 million for each default, plus a surcharge of 3 percent above KIBOR per annum on overdue amounts. Recovery of unpaid levies will follow procedures outlined in the Income Tax Ordinance, 2001, and authorities will be empowered to block outward remittances to foreign vendors processed via local banks for non-compliance. While the Act grants the right to appeal any tax collection order, tax authorities have yet to clarify how they intend to regulate credit card payments processed for these services.
