The Federal Board of Revenue (FBR) has introduced significant changes to Pakistan's tax system in Budget 2025-26, providing some relief to salaried individuals while implementing stricter measures against property transactions, digital commerce, and tax evasion.

During a briefing with Business Recorder, the reforms were unveiled as part of the government's efforts to broaden the tax base and enhance documentation through more rigorous compliance protocols.

Salaried workers will see a reduction in the surcharge rate from 10% to 9% and will receive slight tax relief for those earning up to Rs. 3.2 million annually.

Teachers and researchers will continue to benefit from a 25% tax rebate until 2025.

However, pensioners will face new tax regulations, including a 5% flat tax on pension income over Rs. 10 million for individuals under 70 years old. Moreover, the tax exemption on withdrawals from Voluntary Pension Schemes (VPS) has been eliminated.

To promote affordable housing, the budget introduces a tax credit for interest paid on low-cost housing loans for properties up to 2,500 sq. ft or flats up to 2,000 sq. ft. This credit can be claimed once every 15 years.

Commercial property owners will now have a minimum rent calculated at 4% of the FBR-assigned value, and businesses can no longer offset losses against property income in the same year.

Stricter regulations will apply to cash transactions, with 50% of expenses disallowed for payments exceeding Rs. 200,000 per invoice.

The budget also focuses on regulating the digital economy, with foreign online marketplaces facing a 5% digital levy and domestic digital transactions subject to a final tax ranging from 0.25% to 2%.

Individuals without NTN will be prohibited from buying vehicles, property, or mutual fund units, and online platforms must share seller data with tax authorities.

To combat tax evasion, the FBR has introduced the concept of an 'abettor' to target those aiding fraudulent transactions. Enhanced enforcement measures include the ability to place officers at business premises, freeze bank accounts, and seal non-compliant properties.

Provisions for sales tax have been strengthened to deter fraud, with penalties for unauthorized invoices and broader definitions of tax fraud. The excise duty framework now allows for the immediate confiscation of counterfeit goods, and service tax exemptions have been granted for transactions involving UN organizations and diplomatic missions.

The budget extends timelines for tax assessments and appeals, simplifies filing procedures, and reduces the audit exemption period from four to three years for previously audited taxpayers. These reforms are designed to streamline tax administration and enhance transparency.