• Plans raising Rs500bn through administrative steps, Rs150bn from new measures
• Officials say IMF has been briefed on enforcement strategy ahead of upcoming review
ISLAMABAD: In what appears to be an unusual budget in recent years, the government has placed greater emphasis on enforcement measures rather than introducing new taxes to meet its revenue targets, a strategy that is expected to be tested over the next three to six months ahead of the International Monetary Fund (IMF) review.
Policymakers have sought a policy space from the IMF to assess this approach, aiming to avoid placing additional burden on existing taxpayers while lowering certain rates to stimulate growth and improve tax collection.
“We have convinced the IMF of this strategy,” an official involved in the budget process said, adding that alternative measures remain available if the approach fails to deliver the desired results.
The tax proposals aim to generate approximately Rs150 billion through new measures, while a significantly larger amount of around Rs500 billion is expected to come from enhanced enforcement. The government set the FBR target at Rs15.3 trillion for FY27.
In addition, the federal government has already asked the provinces to contribute between Rs1.3tr and Rs1.7tr to help bridge the shortfall in Federal Board of Revenue collections. The centre also plans to raise a further Rs1.7tr through the petroleum development levy.
Sales tax revenue measures
The government has expanded sales tax at the retail stage by placing 19 food and non-food items in the Third Schedule of the Sales Tax Act to collect 18 per cent sales tax at the consumer price. These include sugar confectionery, pasta, sauces, jams and fermented beverages, as well as footwear, bathroom accessories, crockery, automobile parts, milk products, hair and shaving preparations, tissues and sanitary paper, household utensils, ceramic sanitary ware, petroleum jelly and waxes.
The list also covers insecticides, plastics, tableware, kitchenware, furniture and other household articles, bringing everyday consumer goods under retail price taxation.
It has been proposed that toll manufacturers will withhold sales tax from unregistered buyers. The association of persons and individuals will also withhold sales tax at the rate of 5pc from unregistered suppliers.
Similarly, the government proposed recovering 3pc value-added tax from manufacturers if the imported raw material is sold in the same state.
Income tax revenue measures
The government has proposed a tax on sham life insurance policies in order to discourage their misuse. A withholding tax regime has been introduced on revenues received by digital content creators and social media influencers from platforms such as YouTube, Facebook, Instagram and TikTok. Banking and financial institutions will deduct tax on such receipts.
The withholding tax regime on services has been revised, with rates increased from 6pc to 7pc for services such as courier, logistics, hotel, transport, air cargo, car rental, human resource outsourcing and oil drilling. The withholding tax rate has also been set at 14pc for other services, 12pc for terminal and port services, and 15pc for independent professional services.
The reduced minimum tax rate for distributors, dealers, sub-dealers and wholesalers of specified sectors has been increased from 0.25pc to 0.5pc.
FED revenue measures
The government has expanded the scope of excise taxation, raising the duty on e-liquid for electronic cigarettes to Rs16,500 per kilogram from Rs10,000 while scrapping the earlier 65pc tariff on retail price.
Federal excise duty (FED) has been imposed on naphtha, solvent oil and turpentine, while rates on luxury electric and other high-end vehicles have been revised upward. Vehicles with an import value of Rs20m to Rs30m will be subject to a 30pc FED, while those valued above Rs30m will face a 40pc duty.
FED on luxury internal combustion engine vehicles has also been increased, with a 70pc rate proposed for vehicles with engine capacities between 2,000cc and 3,000cc and 81pc for those above 3,000cc.
Fixed tax for small shopkeepers
The new scheme applies to single-shop retailers with annual sales of up to Rs200 million and covers only the income earned from that shop. To prevent misuse, clear exclusions have been set: businesses with sales above Rs200m, owners of more than one shop, sellers of jewellery or branded clothing, professional service providers such as doctors, engineers and lawyers, as well as carts, kiosks and small street stalls, will not qualify.
National faceless centre
In the Finance Bill, the government introduced a plan for a centralised digital tax operating model, under which audits and assessments would be handled by “faceless” wings in Islamabad to reduce official discretion and direct contact between tax officials and taxpayers.
Pakistan’s new tax operating model is scheduled for a three-phase rollout beginning in October this year. The new model introduces separate audit and assessment wings, both operating virtually and facelessly from a centralised hub in Islamabad.
Under the proposed plan, Inland Revenue operations will be restructured into three functionally separate wings, each operating with a defined mandate, distinct statutory powers and non-overlapping responsibilities.
Published in Dawn, June 13th, 2026