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Jun 11, 2025 Law and Taxes 315

ISLAMABAD – The federal government has announced the budget for 2025–26, focusing on giving relief to the corporate sector, real estate buyers, and bringing reforms to the pension and tax systems. Finance Minister Muhammad Aurangzeb presented the budget and outlined the key changes aimed at boosting the economy, increasing tax collection, and supporting the business sector.

Main Budget Highlights

Area	Change Introduced
Super Tax	Reduced by 0.5% for companies earning Rs200 to Rs500 million annually
Withholding Tax (Property)	Lowered for all slabs (Now ranges from 1.5% to 2.5%)
Federal Excise Duty	7% duty on transfer of plots and houses has been removed
Stamp Duty (Islamabad)	Reduced from 4% to 1%
Mortgage Incentives	Tax credit introduced for homes up to 10 marlas and flats up to 2,000 sq. ft.
Interest Income Tax	Increased from 15% to 20% (not applied to National Savings)
Pension Tax	5% tax on pensions above Rs10 million for pensioners under 70
E-commerce Tax	Online sellers and service providers now brought into tax system
Debt Income Tax	25% tax on income earned through lending (debt-based income)
Solar Panel Imports	18% tax introduced to protect local manufacturing

Relief for Businesses

To support businesses, especially medium-sized companies, the government has reduced the Super Tax by 0.5% for those earning between Rs200 million and Rs500 million per year. This shift is meant to promote corporate expansion and relieve corporate tax load.

Big Changes in Property Taxes

The real estate sector has received major tax relief:

The withholding tax on property purchases has been lowered across all income slabs.
The Federal Excise Duty (7%) on the transfer of plots, commercial buildings, and houses has been removed.
Stamp paper duty for buying property in Islamabad is reduced from 4% to 1%.
The government is also offering tax credit for people buying houses up to 10 marlas or flats up to 2,000 square feet, to support mortgage financing.

Changes in Pension System

The pension system has been changed to reduce pressure on the national budget:

Pensioners under 70 years of age earning more than Rs10 million per year will now pay 5% tax.
Early retirements will be discouraged.
Pension increases will be linked to inflation (Consumer Price Index).
Family pensions will now continue only for 10 years after the spouse's death.
Retired people who start working again must choose between pension or salary, not both.

New Tax Rules for Online and Passive Income

The government plans to bring more people into the tax net:

People and companies selling products or services online will now have to pay tax and submit monthly transaction reports.
Income earned through lending money (debt income) will now be taxed at 25%.
Interest income tax is raised from 15% to 20%, but this does not apply to National Savings Schemes.

Other Key Reforms

The power sector has been improved by renegotiating agreements with Independent Power Producers (IPPs), saving Rs3,000 billion.
Electricity prices have dropped by over 31%, and distribution losses are reduced by Rs140 billion.
A new AI-based system will be used to track production and sales in key industries like cement, beverages, and textiles.
From July 1, taxpayers will use a simplified return form with only 7 fields, replacing the old 800-column form.

Final Thoughts

This year’s budget shows that the government is trying to balance tax collection with relief. While real estate and businesses enjoy major benefits, high-income earners and online businesses will now pay more taxes. Reforms in pensions and the power sector are also steps toward better financial management.

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