Government Plans Tax Adjustments for FY26 Budget

The Pakistani government is set to implement an 18% sales tax on imported raw materials used by exporters, aiming to create uniformity with local raw materials that have been taxed at the same rate since last year.

New Taxation Policies and Revenue Goals

In addition to this sales tax, exporters will also continue to face:
📌 1% minimum income tax on gross receipts, which remains non-refundable.
📌 29% standard income tax, increasing the financial burden on businesses.

This fiscal strategy aligns with recommendations from the International Monetary Fund (IMF), which has urged Pakistan to retain the 1% minimum tax for another two to three years due to revenue uncertainties.

Concerns from Industry Experts

During a discussion at the National Assembly Standing Committee on Finance, FBR Member Tax Policy Dr. Najeeb Memon confirmed the continuation of these policies. The committee also reviewed last year’s 18% sales tax on local raw materials used in export production.

Committee Chairman Syed Naveed Qamar criticized the Federal Board of Revenue (FBR) for passive tax collection methods, leading to a delay in approving the Income Tax Second Amendment Bill. The bill includes a proposal to restore a 25% tax credit for teachers and researchers, effective from July 1, 2022, through tax year 2025—though medical professionals in private practice are excluded from this relief.

Implications for Export Businesses

The introduction of the 18% sales tax on imported raw materials is expected to increase costs for exporters, potentially affecting their global competitiveness. While the government aims to standardize taxation policies, businesses are raising concerns over the financial strain these measures may impose.

The final tax framework will be formally announced in the FY26 budget, with possible revisions based on feedback from industry stakeholders.