ISLAMABAD: The government of Pakistan has officially implemented new taxation measures amounting to Rs339.5 billion, as introduced through the Finance Act 2025, effective from July 1, 2025. These comprehensive changes span various sectors, including increased withholding tax rates on “profit on debt,” the taxation of domestic e-commerce, restrictions on “ineligible persons,” and targeted tax relief for the salaried class, alongside significant indirect taxation on the general public.
The Federal Board of Revenue (FBR) has formally issued the Finance Act 2025, incorporating all amendments made during its passage.
Key Taxation Measures Taking Effect
Among the prominent new taxation measures are:
Withholding Tax on “Profit on Debt”: An increase in the withholding tax rate on “profit on debt.”
Taxation of Domestic E-commerce: The introduction of new taxes on digital transactions within e-commerce platforms.
Restrictions on “Ineligible Persons”: A bar on economic transactions for “ineligible persons” (non-filers) based on specific thresholds and limits outlined in the Finance Act 2025, as per Section 114C of the Income Tax Ordinance.
Salaried Class Relief: Tax relief measures specifically designed for the salaried class.
Indirect Taxation: Heavy indirect taxation measures impacting the general public.
Customs Duties: From July 1, reductions in customs duties, regulatory duties, and additional customs duties will apply to the import of inputs, raw materials, semi-finished products, and finished goods across all sectors and industries, with the exception of the auto sector.
Banking and Digital Economy Focus
The Finance Act 2025 also brings significant changes to the banking sector and digital taxation:
Cash Withdrawal Tax for Non-Filers: The withholding tax rate on cash withdrawals from banks by non-filers has been increased from 0.6 percent to 0.8 percent.
Banking Schedule Amendments: The Seventh Schedule (Banking Schedule) of the Income Tax Ordinance has been amended to revise the taxation of banks and special provisions related to banking business.
New Energy Vehicles Adoption Levy: A new levy has been imposed on both locally manufactured and imported vehicles falling under the “New Energy Vehicles” category.
Digital Presence Proceeds Tax: A “Digital Presence Proceeds Tax” will now be levied on foreign vendors with a significant digital presence in Pakistan. This tax applies to proceeds from every supply of digitally ordered services or goods made from outside Pakistan, regardless of whether they are delivered digitally or physically.
FBR-Bank Data Exchange: Under the Finance Act 2025, the FBR and banks are now authorized to exchange banking and tax information related to high-risk persons, enhancing the FBR’s data-matching capabilities.
Property and Investment Adjustments
Several adjustments have been made to property and investment-related taxes:
Federal Excise Duty on Property Transfers: The three percent Federal Excise Duty on the allotment or transfer of residential and commercial properties has been withdrawn.
Property Withholding Taxes: Withholding taxes under Section 236K on the purchase of property have been reduced. Conversely, withholding rates under Section 236C for sellers have been increased.
Dividend and Government Securities Tax: The rate of tax on dividends received by a company from a mutual fund deriving income from profit on debt has been increased from 25 percent to 29 percent. Additionally, withholding tax on profit from government securities paid to institutional investors (other than individuals) has been increased from 15 percent to 20 percent.
Tax Fraud Enforcement and Safeguards
The Act also clarifies and strengthens measures against tax fraud while introducing certain safeguards:
Arrest Powers: No arrest under these provisions shall be made before the completion of an inquiry. Accused individuals may approach the competent court for bail under Sections 497 and 498 of the Code of Criminal Procedure, 1898.
Deterrence: The purpose of prosecution under Sections 37A and 37B of this Act is to create sufficient deterrence against tax fraud and provide retribution.
Authorization for Arrest: A three-member committee of the FBR will authorize the Commissioner to issue an arrest warrant against a person involved in tax fraud only in cases where the tax loss exceeds Rs50 million. Such arrests would be made if the accused is intentionally or willfully not joining the investigation after three notices, attempting to abscond, or if there are sufficient grounds to believe the accused would tamper with evidence.
These wide-ranging tax measures underscore the government’s commitment to fiscal consolidation, broadening the tax base, and modernizing the tax administration system to enhance revenue collection and ensure greater financial transparency.
