13/06/2026
BUDGET BRIEF 2026
Income Tax
• The Bill proposes to reduce the income tax burden on salaried individuals. Under the proposed changes, the income threshold for the maximum tax rate of 35% has been increased from Rs. 4.1 million to Rs. 7 million, along with the introduction of additional intermediate tax brackets to provide gradual reduction in tax rates. The Bill also proposes to withdraw surcharge applicable on salaried individuals.
• The Bill proposes to make tax collected on payments for digitally ordered goods or services through locally operated e-commerce platforms as adjustable for persons having turnover exceeding Rs. 200 million in a tax year.
• The Bill proposes to omit tax on deemed income from capital assets under section 7E.
• The Bill proposes to tax any payouts, surrender values and maturity proceeds received under life insurance policies, family takaful certificates and similar arrangements, with corresponding withholding obligation on life insurance companies, family takaful operators and window takaful operators. However, payouts arising on death, disability or after completion of seven years from the date of issuance of the policy or plan shall remain excluded. The tax deducted shall be treated as final tax.
• The Bill proposes to rationalize the disallowance relating to failure to integrate with Board’s system. The proposed amendment seeks to restrict disallowance to 5% of expenditure claimed by a person failing to install electronic resources or act as an integrated enterprise as required by law, subject to prescribed procedures.
• The Bill proposes to empower the Federal Government to reduce withholding tax rates having the nature of minimum tax, other than minimum tax under section 113, up to 1% on the basis of economic viability for specified persons or classes of persons. Any such amendments made during a financial year shall be placed before the National Assembly.
• The Bill proposes tax credit of ten percent of amount invested on integration with Board’s system by the persons required to integrate under the Ordinance 2001, Act 1990 or Act 2005 for real-time production monitoring or reporting of sales or receipts,
• The Bill proposes to define the cost in case of immovable property acquired through inheritance by an individual to be the fair market value under section 68(5) (i.e. being the value notified by the Board or, where not notified, the value fixed by the relevant authority for stamp duty purposes), as on the date of death of the original owner.
• The Bill proposes that transmission of immovable property to a beneficiary on death shall include transfer of property through family settlement amongst family members consequent upon death of a person. This amendment is expected to provide certainty regarding tax neutrality of family settlement arrangements in inheritance cases.
• The Bill proposes to expand the definition of “association of persons” to specifically include limited liability partnerships within its ambit.
• The Bill proposes to tax income received by a member of a limited liability partnership, if the income of such partnership is exempt from tax. The existing Explanation that exempt income of an association of persons shall remain exempt in the hands of members is proposed to be omitted.
• The Bill proposes to empower the Board to prescribe special procedure for small traders and shopkeepers relating to rate and payment of tax including fixed tax, filing of return and audit.
• The Bill proposes to bring non-banking finance companies, modarabas and companies dealing in debt securities under capital gain tax mechanism under section 100B read with the Eighth Schedule. Further, the NCCPL, in the case of banking company, insurance company and mutual funds is proposed to compute and determine capital gain in accordance with section 37A, while tax on such gains shall continue to be deposited by these entities in accordance with applicable provisions of the Ordinance 2001.
• The Bill proposes to streamline the procedure relating to electronic filing of returns by requiring filing of return of income through IRIS in the prescribed manner, along with rules for verification and digital signatures. Additionally, companies are required to file financial statements in electronically readable file format from tax year 2026 onwards. The proposed definition of ‘electronically readable format’ is also introduced.
• The Bill proposes to introduce a faceless audit and assessment mechanism for specified persons, incomes or cases. Hearings and recording of statements, where required, shall be conducted through Ehearing, while identity of the officer conducting such proceedings shall remain confidential.
• The Bill proposes to introduce a faceless appeal mechanism whereby appeals before Commissioner Appeals may be processed through the National Faceless Centre in the prescribed manner.
• The Bill proposes a mechanism for scrutiny of departmental litigation, though an independent case scrutiny committee for approval of references before the High Court and appeals or reviews before the Federal Constitutional Court or Supreme Court of Pakistan. The recommendations of the committee shall be binding upon the Commissioner Inland Revenue. Members of the committee are also provided with protection from any suit, prosecution or other legal proceedings.
• The Bill proposes to expand the powers of the committee under Alternative Dispute Resolution to allow rectification of mistakes apparent from record (either on its own motion or brought to notice by the taxpayer) within thirty days of receipt of decision by the taxpayer or Commissioner. The Bill further proposes that in case of vacancy or unavailability of any committee member, the Chairman FBR may fill such vacancy for continuity of committee, with an extended timeline to conclude proceedings.
• The Bill proposes to introduce an algorithmic settlement mechanism for digital settlement of tax proceedings through revision of return before assessment or amendment of assessment. Taxpayers may accept a system-generated settlement offer and file revised return without approval of the Commissioner by payment of determined tax, without any separate penalty or default surcharge.
• The Bill proposes to include authorized shipping agents for filing of return in respect of non-resident ship owners or charterers, by making them jointly and severely liable. The Bill also proposes that only one return for each vessel or voyage shall be furnished by the master of ship or authorized shipping agent covering shipping income.
• The Bill proposes to omit the additional advance tax at the rate of 1% collected or deducted under section 147(6C) from exporters, indirect exporters and related persons at the time of realization of foreign exchange proceeds, export proceeds or export of goods to facilitate their cashflows. However, tax deducted under section 154 currently at 1% as minimum tax has been increased to 1.25%.
• The Bill proposes to expand the scope of withholding tax on capital gain arising from disposal of debt instruments and Government securities on investment by all persons (currently non-resident persons) maintaining Foreign Currency Value Account (FCVA), Foreign Currency Business Value Account (FCBVA), Non-Resident Rupee Value Account (NRVA), or Non-resident Rupee Business Value Account (NRBVA). Corresponding amendments are also proposed in the second schedule.
• The Bill proposes to introduce the definitions of “algorithmic settlement mechanism”, “authorized shipping agent”, “electronically readable format”, “licensed integrator”, “national faceless center” and “PRAL”.
• The Bill proposes to introduce a withholding tax regime for amounts credited or received as revenue from social media platforms, with tax to be deducted at a rate of 5% (minimum for resident persons and final tax for non-resident person). Under the proposed provisions, banking companies and non-banking financial institutions will act as withholding agents responsible for deducting and remitting the tax.
• The Bill proposes to introduce an enabling provision to allow the issuance of exemption certificate under section 159 of Ordinance 2001 on annual basis to a collective investment scheme or a REIT scheme that has distributed at least 90% of its accounting income to its unit holders, certificate holders, or shareholders during each of the preceding three years. A similar facility for obtaining exemption certificate is also proposed for NPOs holding approval under section 2(36)(c).
• The Bill proposes to introduce a framework requiring banking companies and financial institutions to electronically report financial transactions to the Central Data Hub. The reported information will be used for algorithmic cross-matching of tax and banking data in cases where deposits or withdrawals exceed Rs. 100 million during a reporting period (specified six months).
• The Bill proposes to expand the Commissioner’s powers relating to audits under section 177 that in specified circumstances, the Commissioner may direct a taxpayer to have its accounts re-audited by an accountant, its inventory revalued by a cost accountant, and actuarial values determined by an actuary, from the panel nominated by the Board.
• The Bill proposes to exponentially enhance the penalties for non-compliance, including failure to furnish statements, integration failures and incorrect withholding tax claims etc.
• The Bill proposes to substantially increase surcharge payable for inclusion in the Active Taxpayers List (ATL) after the due date for filing the tax return. Under the proposed amendments, the surcharge shall be: ─ One hundred thousand in case of company; ─ Fifty thousand in case of an AOP; and Twenty-Five thousand in case of an individual.
• The Bill proposes to establish the Directorate General (Field Compliance) Inland Revenue, through the insertion of section 228A to provide the legal framework for the constitution, powers, and functions of the Directorate.
• The Bill proposes to abolish the advance tax currently applicable to foreign TV plays and advertisements, thereby removing the withholding tax requirement on such payments.
• The Bill proposes to provide relief from super tax under section 4C by exempting income up to Rs. 500 million from its scope. Furthermore, the super tax rate applicable to income exceeding Rs. 500 million is proposed to be reduced from 10% to 8%. However, this concession will not be available to banking companies, ENP and fertilizer sectors having income exceeding Rs. 150 million.
• The Bill proposes to withdraw reduced minimum tax rate of 0.25% under section 113 currently available to distributors of pharmaceutical products, fast-moving consumer goods (FMCGs), and ci******es. Consequently, such distributors will become subject to the applicable standard minimum tax rate of 1.25% under the law.
• The Bill proposes to increase the reduced withholding tax rate under section applicable to specified services from 6% to 7%. At the same time, the general withholding tax rate on services is proposed to be reduced from 15% to 14%, except in the case of independent professional services, including those rendered by doctors, lawyers, architects, accountants, and software engineers or developers operating independently, for whom the existing tax rate of 15% will continue to apply.
• The Bill proposes to increase the withholding tax rate on capital gains arising from the disposal of certain debt securities under section 151A from 15% to 20%.
• The Bill proposes to extend the applicability of reduced tax rate of 0.25% on export of IT and IT-enabled services from tax year 2026 to tax year 2029.
• The Bill proposes to significantly reduce the advance tax rates applicable to transactions involving immovable property. The advance tax on the sale or transfer of immovable property, currently ranging from 4.5% to 5.5%, is proposed to be reduced to a flat rate of 2.75%. Similarly, the advance tax on the purchase of immovable property, presently ranging from 1.5% to 2.5%, is proposed to be reduced to a flat rate of 1.25%. Furthermore, the related enhanced tax rates applicable to the late filers, have also been proposed to be withdrawn.
• The Bill proposes substantial reduction in advance tax applicable on amounts remitted abroad through credit, debit, or prepaid cards, by lowering the rate from 5% to 0.5%.
• The Bill proposes introduction of a reduced withholding tax rate of 12% under section 153(1)(b) for persons engaged in providing terminal or port services, thereby offering tax relief to entities operating in this sector (general rate 15%).
• The Bill proposes to increase the reduced minimum tax rate under section 113 applicable to distributors, dealers, sub-dealers, wholesalers of specified products from 0.25% to 0.5%, thereby doubling the minimum tax burden on such businesses.
• The Bill proposes to withdraw exemption from withholding tax under section 153 currently available to companies operating as Trading Houses, even where they meet the prescribed conditions.
• The Bill proposes to raise the minimum threshold from Rs. 100 million to Rs. 200 million for individual traders to become prescribed withholding agents under section 153.
• The Bill proposes to withdraw the option for opting out of the determination and payment of tax on capital gain on listed securities under Eighth Schedule, thereby making the settlement of listed securities from NCCPL CGT system mandatory even on taxpayers whose income is otherwise exempt from tax or the non-residents eligible for treaty benefits.
• Currently capital gain tax under section 37A on disposal of securities acquired on and from 01 July 2025 is excluded from applicability of double tax rate under the Tenth Schedule in the case of those not appearing in ATL. The Bill proposes to withdraw this exclusion.
Sales Tax
• The Bill proposes to insert new faceless system (National Faceless Centre), for audits, assessments and appeals mechanism.
• The Bill proposes rationalization of the definition of Tier-1 Retailers by excluding certain categories that were previously captured on a broader basis.
• The Bill proposes to introduce electronic system for adjustment of Debit / Credit notes, as prescribed by the Board.
• The Bill proposes to broaden the scope of section 21 of Act 1990 to allow the Board or its officers to deregister, suspend, or blacklist registered person for failure to integrate e-invoicing systems or comply with monitoring and tracking provisions under section 40C. • The Bill proposes to require registered persons engaged in both taxable and exempt supplies to issue invoices for exempt supplies. It also introduces a mechanism for advance invoicing with particulars as prescribed by the Board.
• The Bill proposes empowering the Commissioner to enforce re-audit of accounts or re-valuation of inventory leading to audit observations.
• The Bill proposes to introduce section 47AA to enable the Board to issue algorithm-based settlement offers before issuance of orders under sections 11D or 11E. Registered person will have an option to avail such offer with payment required within ten days.
• The Bill proposes to include various items in the Third Schedule for collection of taxes on retail price.
• The Bill proposes to introduce certain new exemptions and amendments in existing exemptions in Sixth Schedule.
• The Bill proposes to amend Eighth Schedule to extend reduced tax rate of 1% for locally assembled electric vehicles until 30 June 2027 and to introduce 1% reduced rate for electric trucks in CBU condition.
• The Bill proposes to extend withholding tax obligations to individuals, associations of persons, and registered persons engaged in toll manufacturing on purchases from persons other than active taxpayers and registered persons.
• The Bill proposes to recover 3% value addition tax, along with default surcharge, from manufacturers where imported goods are supplied in the same state. It further provides for prosecution where goods supplied in the same state exceeds 50% of total imports during a financial year.
