ISLAMABAD: With limited space for fresh tax reforms, the Shehbaz Sharif-led government has decided to reframe its fiscal strategy by prioritising “equity” over the previous mantra of “broadening the tax base.”
This shift accompanies an ambitious revenue target of nearly Rs14 trillion for FY26 — a 22% jump from the previous year’s projections.
The move signals a new phase in Pakistan’s tax policy where lower-income groups may face increased financial pressure.
The government has committed to generating Rs655 billion from new tax measures, and another Rs400 billion from improved enforcement.
However, enforcement remains weak, with the Federal Board of Revenue (FBR) still grappling with inefficiencies and underperformance.
Digital Focus Replaces Filer System
One of the key changes proposed is the replacement of the filer–non-filer distinction with differential tax rates for digital and cash transactions.
Lower tax rates will apply to digital payments, while higher rates will be levied on cash-based transactions, pushing consumers and businesses toward banking channels.
Additionally, taxes will rise on a wide range of goods and services, with the government citing “equity” to justify the increases.
The FBR also aims to impose a new tax at the Thresher Unit Level to raise revenue from tobacco processing using industrial machinery.
A carbon tax, and fresh levies on solar panels and processed food, are also on the cards, potentially increasing consumer costs and discouraging clean energy adoption.
Strain on Industries, Minor Relief for Salaried Class
Pakistan’s industrial slowdown continues, especially in real estate and large-scale manufacturing, making the government’s tax goals appear overly optimistic.
The proposed 12.3% tax-to-GDP ratio includes 10.6% from FBR collections, along with provincial contributions and petroleum development levies.
The small allocation to the federal PSDP could further limit growth by reducing infrastructure spending.
In an unusual move, the Centre has also asked Punjab and Sindh to co-finance dam construction projects.
However, there is a small win for salaried individuals earning around Rs100,000 per month, who may benefit from a higher exemption threshold and reduced tax rates.
Fertiliser and pesticide exemptions — secured from the IMF for another year — will temporarily ease cost burdens in the agriculture sector.
Despite these adjustments, former FBR chairman Dr Irshad Ahmed has warned that without effective enforcement, new policies merely redistribute the tax burden.
He emphasised that true reform demands field-level operational upgrades, data utilisation, and an end to bureaucratic stagnation.
