Finance Act 2025 introduces new digital taxes, revised income tax rates, and expanded enforcement measures effective from 1 July 2025.

Pakistan’s Federal Board of Revenue (FBR) has enacted the Finance Act 2025 on 27 June 2025, introducing major tax reforms targeting digital transactions, income, property, and enforcement, effective from 1 July 2025.

The Finance Act 2025 implements the Digital Presence Proceeds Tax (DPPT), new domestic digital transaction levies, and revised income tax rates. It also introduces changes to capital gains, dividend income, withholding tax, and enforcement powers to expand the tax base and modernise compliance systems.

Digital taxation

The Digital Presence Proceeds Tax Act 2025, enacted through the Finance Act, imposes a 5% tax on proceeds from supplies of digitally ordered goods and services made by foreign vendors with a significant digital presence in Pakistan, regardless of whether the goods or services are delivered digitally or physically. A digital presence is established when such supplies exceed PKR 1 million annually and meet at least one of the following criteria: user data presence, local payment processing, delivery responsibility, aftersales support, or active marketing.

Payment intermediaries, including banks and licensed financial institutions, must deduct and remit the DPPT by the 7th of each month. Foreign vendors making payments for online advertisements are also required to deduct and remit the tax on a monthly basis.

Exemptions apply for payments linked to foreign vendor branch offices in Pakistan where goods are supplied or services rendered locally.

Separately, a new domestic digital tax is introduced:

  • 1% of gross payments made through digital or banking channels;
  • 2% on payments made via Cash on Delivery (CoD) through courier services.

Export proceeds are exempt to avoid double taxation. Intermediaries and couriers must now submit monthly or quarterly withholding statements. Penalties for non-compliance include fines of PKR 500,000 for first-time registration defaults by online sellers, rising to PKR 1 million for repeat offences.

Intermediaries failing to deduct tax may be penalised 100% of the tax involved.

Income and withholding tax amendments

For salaried individuals, the following revised income tax rates apply:

  • Up to PKR 600,000: 0%
  • PKR 600,001 – 1,200,000: 1%
  • PKR 1,200,001 – 2,200,000: 11%
  • PKR 2,200,001 – 3,200,000: 23%
  • PKR 3,200,001 – 4,100,000: 30%
  • Above PKR 4,100,000: 35%

The surcharge on individual income over PKR 10 million is reduced from 10% to 9%. For super tax, new progressive rates are applied from 0% up to 10% for income exceeding PKR 500 million.

Pension income exceeding PKR 10 million is now taxed at 5%, unless the individual remains employed by the payer or its affiliate, in which case normal slab rates apply. Individuals aged 70 or above are fully exempt from tax on pension income.

Withholding tax and property transactions

Capital gains from disposal of government securities by non-residents through Special Convertible Rupee Accounts (SCRA) are taxed at:

  • 20% for holding under 6 months;
  • 10% for 6 months or more.

Profit on debt is taxed as follows:

  • 20% on bank deposits and government securities for non-individuals;
  • 15% in all other cases.

Dividends received by corporates from mutual funds and REITs are taxed at 29% if derived from debt securities.

Advance tax rates on sale or transfer of immovable property are adjusted:

  • Up to PKR 50 million: 4.5%
  • PKR 50 million – 100 million: 5%
  • Above PKR 100 million: 5.5%

New restrictions on high-value transactions for “ineligible persons” (non-filers) are introduced, including:

  • Vehicle purchases over PKR 7 million;
  • Residential property transfers over PKR 50 million and commercial property over PKR 100 million;
  • Investments in securities/mutual funds over PKR 50 million;
  • Annual cash withdrawal limit of PKR 100 million.

Cash withdrawal tax for inactive taxpayers increases from 0.6% to 0.8%.

Business and enforcement measures

Disallowance of 50% of expenditure applies where payments for invoices over PKR 200,000 are made via non-banking channels. For purchases from non-NTN holders, 10% disallowance applies (limited to agricultural produce purchased from middlemen).

Section 175AA empowers the FBR to cross-match tax declarations with bank data using algorithms for high-risk individuals. FBR officers may now be posted at business premises for monitoring under Section 175C.

The general services tax rate is increased from 10% to 15%.

Petroleum and Customs Amendments

A Climate Support Levy is introduced on petroleum products:

  • PKR 2.5/litre on motor spirit, diesel, and furnace oil in FY 2025–26, rising to PKR 5/litre in FY 2026–27.

Customs Act amendments include:

  • Mandatory Cargo Tracking System and e-Bilty Mechanism for goods movement;
  • Expanded powers to hire specialists;
  • Establishment of Centralized Assessment and Examination Units;
  • Creation of Digital Enforcement Stations and Customs Command Fund;
  • Confiscation of vehicles with tampered chassis presumed to be smuggled.

Sales tax and other provisions

Key updates to the Sales Tax Act 1990 include:

  • Tax liability on digitally ordered goods now lies with payment intermediaries or couriers, depending on payment method;
  • Mandatory registration for online marketplaces, sellers, and couriers;
  • Monthly reporting of digital transaction data;
  • New definitions for terms such as “abettor”, “e-commerce”, and “tax fraud”;
  • Sales tax extended to imports of pet food, chocolates, and coffee in retail packing.