In a sweeping recalibration of the income tax framework, the federal government has rolled out a complex blend of digital taxation reforms and fiscal tightening in the budget. The spotlight is firmly on expanding the tax net through greater digital oversight, redefined compliance protocols, and recalibrated rates targeting both high-income earners and emerging sectors.
With the rise of e-commerce and digital payments, the state is moving aggressively to ensure no financial avenue remains beyond reach — from pensioners with substantial benefits to gig-economy transactions once seen as untouchable. This fiscal iteration marks a shift not only in numbers but in the philosophy of enforcement and revenue mobilization.
In an assertive fiscal maneuver, the federal regime has unveiled an austere array of tax recalibrations and compliance crackdowns within the 2025-26 budget, orchestrated to amass a hefty Rs670 billion in supplementary state income. While Rs58 billion in relief — predominantly earmarked for the wage-earning segment — offers modest reprieve, the resultant fiscal haul nets at Rs623 billion.
The Federal Board of Revenue (FBR), wielding its regulatory scepter, has unfurled sweeping alterations. Among them: augmented withholding levies on service-oriented sectors, digital commerce ecosystems, and virtual marketplaces. The formerly exempt tribal territories — FATA/PATA — will now shoulder a 10% General Sales Tax (GST), and solar imports face an intensified 18% GST imposition. Interest yields, cash retrievals from banks, and compact vehicle acquisitions (under 850cc) are also under an escalated taxation umbrella. Furthermore, affluents drawing pension income above the Rs10 million watermark will now contend with newly minted fiscal obligations. Likewise, constraints are clamped on property and automobile procurement for tax-evading entities.
In an intriguing juxtaposition, acquisition taxes on real estate have been trimmed by 1.5%, while sellers must now absorb higher fiscal burdens. Concurrently, the erstwhile Federal Excise Duty (FED) on property exchanges has been nullified. Broadly, the budget blueprint delineates Rs281 billion to sprout from policy-level taxation metamorphoses, and Rs389 billion to be squeezed from enhanced enforcement muscle — coalescing into the Rs670 billion augmentation.
With an assertive leap, the FBR has targeted a mammoth Rs14.131 trillion revenue retrieval for FY2025-26 — a notable ascendancy from the already revised Rs11.9 trillion prognosis of the outgoing fiscal term. Originally, the government had conferred with the IMF on a Rs12.97 trillion benchmark, only to scale back to Rs12.33 trillion, and now reconcile at Rs11.9 trillion by fiscal closure on June 30, 2025.
Breaking away from long-standing convention, the authorities bypassed a customary pre-budget technical dossier for the press — despite tabling one of the lengthiest Finance Bills of the past thirty years. Among the boldest provisions of Finance Bill 2025-26 is the amplified tax rate on all service-based sectors, with the Withholding Tax ceiling leaping from 11% to 15%. Architectural firms, notably, will witness service taxes doubling from 4% to 8%, a pivot poised to net Rs70 billion in incremental collections.
In a safeguard strategy to fortify indigenous merchants, the FBR has slapped an 18% GST on cross-border ecommerce portals, including platforms like Temu. Courier operatives, under this edict, must now extract withholding dues at the point of delivery. Simultaneously, GST exemptions have been rescinded on a spectrum of goods, and a 10% flat tax deployed to squeeze Rs35 billion more into the state coffer. Interest income taxation has surged from 15% to 20%, projecting an inflow of Rs50 billion. Dividend disbursements will now face a 25% levy, while mutual funds sit under a 15% umbrella.
A novel 5% tax now befalls pension income breaching the Rs10 million threshold, leaving sub-threshold incomes untouched. Meanwhile, non-filers withdrawing cash will be taxed at 0.8%, up from the prior 0.6%.
On the customs front, the FBR has engineered a reduction in tariff burdens by paring down additional customs duties and regulatory imposts — albeit sacrificing Rs200 billion in potential intake. The duty matrix now comprises streamlined slabs of 5%, 10%, and 15%, supplanting erstwhile brackets of 3%, 11%, and 16%. The zero-duty regime — formerly applicable to 2,201 tariff lines — has been extended to envelop 916 more PCT codes, while duties have been relaxed on items listed under 2,624 PCT codes.
This sweeping fiscal overhaul — marked by a dual thrust of intensified collection and selective leniencies — redefines the country’s revenue architecture while aiming to shore up macroeconomic fortitude.
On the income tax front, a fresh fiscal instrument — the Digital Transactions Proceeds Levy — has been inaugurated, accompanied by corresponding amendments to the Income Tax Ordinance of 2001. This move aims to encapsulate domestic vendors engaged in digitally facilitated goods and services. Banks and courier services have been enlisted as withholding agents to seize the full payment pipeline — from checkout to final settlement.
The withholding tax on specified services is proposed to climb from 4% to 6%, with a carve-out retained for IT and IT-enabled services. For non-specified services, a uniform levy of 15% will apply. Meanwhile, sportspersons face an increase from 10% to 15%. Moreover, new assessment provisions for banking companies have been woven in, demanding greater transparency and disclosure to capture an accurate portrayal of taxable income and dues.
Interest income — or profit on debt — will now attract a steeper tax rate, jumping from 15% to 20%. Similarly, the dividend tax rate will spike to 25%, while mutual funds will fall under a 15% bracket. Pension income crossing Rs10 million for individuals under 70 years will now incur a 5% levy; those earning less than this remain shielded under a zero-tax regime.
A modest reduction of 0.5% in super tax rates is being floated for income tiers between Rs200 million and Rs500 million. For salaried individuals in the lower to middle-income range — earning up to Rs3.2 million annually — tax rates have been trimmed. Additionally, the salary surcharge has been marginally eased, down from 10% to 9%.
The tax landscape of erstwhile FATA and PATA regions will continue to enjoy immunity from income and withholding tax for another year — extended through tax year 2026.
Notably, the 25% rebate previously afforded to full-time educators and researchers is poised for restoration — retroactive from tax year 2023 through 2025. A new provision will also offer proportional tax credit on profit accrued from debt financing used to construct or acquire housing units up to 250 square yards, or flats up to 2,000 square feet.
To bring the sprawling digital marketplace under tighter tax scrutiny, the government has formalized the definition of e-commerce and redefined online marketplace to capture all taxable undertakings. Presently, such platforms deduct 1% sales tax on supplies from non-active taxpayers, but this mechanism barely scratches the surface of the burgeoning e-commerce domain, particularly vendors leveraging websites and apps.
Hence, the withholding tax regime is being overhauled — to now envelop both digital payments and cash-on-delivery models. Financial intermediaries such as banks, fintechs, exchange firms, and gateways will now collect sales tax on electronic transactions. Meanwhile, courier networks will shoulder tax deductions on physical deliveries. Under this revised structure, the withholding tax rate is slated to rise from 1% to 2%.
The 2025–26 income tax regime stands as a clear signal of the government’s pivot toward modernizing its fiscal apparatus — balancing between revenue generation, digital traceability, and selective relief. From redefining e-commerce taxation to restoring incentives for educators, and from imposing levies on digital transactions to expanding the scope of withholding agents, the government has charted an intricate roadmap of reforms. While the changes will undoubtedly widen the tax base and enhance state revenues, they also pose compliance and adaptation challenges, especially for digital vendors and financial intermediaries. Nonetheless, the overarching aim is unmistakable: to weave a tighter fiscal net around a fast-evolving economic ecosystem.