As Pakistan prepares to unveil its federal budget for the fiscal year 2025-26, major changes in tax policy and regulatory duties are on the cards, according to official sources.

The new budget is expected to balance targeted economic relief with measures aimed at expanding the tax base under International Monetary Fund (IMF) guidelines.

Duty reductions to support industry

One of the key proposals includes reducing regulatory and customs duties by 2-3% on more than 3,500 imported items, with a particular focus on easing the cost of raw material imports for the industrial and construction sectors. There is also a proposal to abolish or reduce withholding tax on these raw material imports to stimulate local production and reduce input costs.

Auto sector GST hike

In contrast, tax increases are being proposed in the auto sector. The General Sales Tax (GST) on locally manufactured 850cc vehicles is expected to rise by 5.5%, while GST on other locally assembled vehicles may increase from 12.5% to 18%, significantly raising consumer prices.

Super tax adjustments for large firms

The budget also includes proposed adjustments to the super tax regime for high-earning companies:

Companies earning Rs150 million annually may retain their current exemption.
A 0.5% reduction in super tax is proposed for companies earning Rs200 million annually.
For firms earning Rs250 million, the rate may drop from 1.5% to 1%.
The super tax for companies earning Rs300 million or more is likely to remain at 4%.

Finance Ministry officials said the current rate of super tax is likely to remain for the corporate sector.

IMF-driven tax expansion plans

In line with IMF demands, the government is preparing to widen the tax net and reduce sector-specific exemptions. Proposed steps include:

Taxing agricultural income for the first time in the new fiscal year.
Bringing freelance and digital platform income under the tax umbrella, especially income earned from abroad or social media.
Imposing new taxes on fertilizers, pesticides, and bakery items -- areas previously exempted.
A reduction in taxes on beverages and cigarettes has been suggested.
Abolishing tax exemptions for the former FATA region and introducing a 12% tax.

Furthermore, the federal excise duty on property transactions may be abolished, while the capital gains tax on shares and real estate is likely to see an increase. The IMF has stressed documenting the economy and preventing tax evasion.

Relief for salaried class and govt employees

Amid these new taxes, the government is also considering relief measures:

A 10% salary relief for the salaried class.
A 5% to 7.5% increase in pensions for retired government employees.
A 30% allowance for government employees from Grade 1 to 16.
A plan to merge ad hoc relief allowances into the basic salary, simplifying pay structures.