The government has proposed three additional taxation measures, aiming to generate Rs. 36 billion in revenue to offset a 10% pay increase for government employees and a reduction in the general sales tax (GST) on solar panels. These steps come directly in response to the International Monetary Fund (IMF)’s insistence on adhering to the agreed-upon financial framework for the budget 2025-2026.
Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial revealed these new measures on Sunday to the National Assembly Standing Committee on Finance. He emphasized that these proposals are crucial to fill the financial gap for the upcoming fiscal year.
Details of the New Taxation Measures
The three new taxation measures, which will be incorporated as amendments into the Finance Bill (2025-26) once approved by parliament, include:
- Federal Excise Duty (FED) on Day-Old Chicks (DOC): A 10 percent FED will be imposed on day-old chicks in the poultry sector.
- Increased Tax on Mutual Fund Dividends: The tax rate on dividends received by a company from a mutual fund deriving income from debt profits will be increased from 25 percent to 29 percent.
- Higher Withholding Tax on Government Securities: The withholding tax on profit from government securities paid to any person (institutional investors), other than an individual, will be increased from 15 percent to 20 percent.
These measures contribute to the FBR’s broader strategy for 2025-26, which already includes Rs. 312 billion in new taxation measures and Rs. 389 billion in enforcement measures. Factoring in an Rs. 8.5 billion revenue loss from the solar panel GST reduction, the net revenue impact of all taxation measures for the next fiscal year now stands at Rs. 339.5 billion.
IMF Remains Vigilant, Mini-Budget Looms
Despite the newly proposed taxes, sources indicate that the IMF is still not entirely satisfied with the revenue projections provided by the Ministry of Finance and the FBR. The Fund is reportedly pressuring tax authorities for more accurate revenue impact calculations, hinting that a “mini-budget” might be necessary to fill any remaining gaps if targets are missed.
The IMF estimates that the 6% to 10% hike in public sector employee salaries will cost approximately Rs. 29-30 billion. The reduction of GST on imported solar panels from 18% to 10% is expected to result in a revenue impact of Rs. 6-8 billion, down from an initial estimate of Rs. 20 billion at the 18% rate. In total, the IMF had asked the government to implement additional measures amounting to Rs. 36-38 billion to cover the fiscal gap created after the initial budget announcement.
Committee Approves Finance Bill and Other Measures
The National Assembly Standing Committee on Finance approved the Finance Bill (2025-26), incorporating recommendations from both the Senate committee and its own members.
Chairman Langrial reiterated to the committee that the financial shortfall of approximately Rs. 35-36 billion includes Rs. 12 billion due to the salary increase and Rs. 8.5 billion from the solar panel tax reduction. He also mentioned that the federal government has added an amount for revenue distribution to provinces under the National Finance Commission (NFC) Award.
The FBR Chairman confirmed that the government had shared six new taxation measures with the IMF, three of which have already been approved by the Fund. Additionally, the committee was informed that a uniform tax rate of 10% would now apply to both imported raw cotton and local cotton, aiming to ensure parity.
