Islamabad: The National Assembly on Thursday approved the Rs17.6 trillion federal budget for the fiscal year 2025–26, endorsing Rs463 billion worth of new tax measures, including levies targeting the digital economy, fuel, and consumer goods.
The passage of the Finance Bill 2025 also saw significant amendments to the enforcement powers of the Federal Board of Revenue (FBR), particularly concerning arrests in sales tax fraud cases. These powers were retained but with added safeguards, following consultations between the government and its coalition partners.
The Finance Act 2025 will come into effect on July 1 after presidential assent.
Key Budget Allocations
The approved budget includes:
Rs8.2 trillion for interest payments (the largest allocation),
Rs2.55 trillion for defence expenditure (excluding military pensions and development),
Rs1.1 trillion for subsidies,
Rs1 trillion each for pensions and development expenditure, and
One of the most discussed provisions involved granting the FBR arrest powers in sales tax fraud cases. The final version of the Finance Bill includes new safeguards:
Arrests cannot be made at the inquiry stage.
Offences are now bailable, ensuring legal recourse before detention.
Arrest authority is limited strictly to confirmed cases of sales tax fraud.
These changes address earlier concerns about unchecked enforcement and aim to maintain a balance between curbing tax evasion and protecting taxpayer rights.
Expansion of the Tax Base
Several new tax measures were introduced to broaden the base:
Digital economy brought under tax laws, including streaming platforms, e-commerce, and cash-on-delivery services.
Rs2.5/litre climate support levy imposed on petrol and diesel.
1–3% tax on conventional fuel-based vehicles, aimed at subsidizing electric vehicles.
Excise duty of Rs10 per day-old chick introduced, with a revenue target of Rs15 billion.
10% sales tax imposed on imported solar panels.
Income tax of 5% introduced on annual pensions exceeding Rs10 million.
Additionally, digital marketplaces and foreign vendors offering services in Pakistan have been made liable for tax compliance under the updated legislation.
Key Exemptions & Adjustments
The Finance Act 2025 also includes targeted exemptions:
Income tax relief for charitable institutions such as Beaconhouse National University, Federal Ziauddin University, Punjab Police Welfare Organization, and the Army Officers Benevolent Fund.
Residential property owners are now exempt from paying up to 6.5% withholding tax if they sell the property after retaining it for at least 15 years.
Strengthened Fiscal Controls
To discourage undocumented transactions, the budget enforces:
Disallowance of expense claims on cash payments exceeding Rs200,000.
Input tax adjustments blocked on large cash transactions above set thresholds.
Finance Minister Muhammad Aurangzeb noted that the budget introduces structural reforms aimed at improving compliance and supporting long-term fiscal stability. The FBR projects Rs389 billion in additional revenue from enforcement actions, although a previous proposal to ban high-value economic transactions by non-filers has been scaled back.
The government has clarified that such bans will now only apply to:
Residential properties valued over Rs50 million,
Commercial properties over Rs100 million,
Vehicles priced above Rs7 million,
Stock market investments exceeding Rs50 million annually, and
Cash withdrawals above Rs100 million annually.
The approved budget reflects a mix of revenue-enhancing measures, administrative reforms, and targeted incentives, aligning with the government’s broader strategy to support economic recovery while ensuring tax equity.
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