The Federal Board of Revenue (FBR) is set to formally issue a “negative list” specifying exempt services within the Islamabad Capital Territory (ICT) for the upcoming fiscal year 2025-26. This significant policy shift, part of the proposals outlined in the Finance Bill 2025, aims to standardize service taxation and align ICT’s tax framework with practices observed in other provinces.
The FBR has been granted new powers to delineate which services will be treated as exempt, subject to specific conditions, restrictions, and limitations. This legislative maneuver is designed to enhance clarity in service taxation, particularly concerning services that will remain untaxed.
Automated Integration for Enhanced Compliance
A key component of this new proposal is the insertion of a proviso under sub-section (1) of Section 3 of the Sales Tax Act. This amendment empowers the FBR to mandate that any service provider listed in Table 1 or Table 2 of the relevant Schedule integrate its business operations with the FBR’s Computerized System.
This integration is intended to facilitate real-time reporting and monitoring of both taxable and exempt services, thereby significantly improving transparency and compliance within the services sector. The mechanism mirrors similar automated systems already implemented under various provincial sales tax laws, underscoring the FBR’s commitment to achieving uniform service taxation across the country. The precise implementation procedures and the effective date for this integration will be announced by the FBR through a general order.
Upholding International Commitments
The Finance Bill 2025 also reaffirms Pakistan’s existing international commitments by continuing to exempt certain services under the Sixth Schedule of the Sales Tax Act, 1990. These exemptions include:
- Services provided to the German Development Agency (GIZ), as specified under serial no. 147.
- Services acquired by agencies of the United Nations, diplomats, diplomatic missions, and other privileged entities, as listed at serial no. 163 of the same schedule.
With the formal introduction of a negative list for exempt services, the FBR aims to eliminate ambiguities in service taxation within Islamabad. This strategic move is expected to enhance regulatory oversight, ensuring that only officially designated services remain exempt from tax. Ultimately, this will provide greater clarity for both taxpayers and service providers operating within the Islamabad Capital Territory.
