Islamabad: The Pakistani government is expected to propose a reduction in the Super Tax in the upcoming federal budget for the fiscal year 2025-26, as part of broader tax reforms aimed at easing the burden on businesses while maintaining revenue streams. However, the corporate tax rate is likely to remain unchanged, and an increase in sales tax on smaller vehicles is anticipated, according to sources familiar with budget preparations.
Super Tax Revisions Under Consideration
The Super Tax, an additional levy imposed on high-income companies to bolster fiscal consolidation, may see significant adjustments in the new budget. Officials are currently finalizing proposals to amend Section 4C of the Income Tax Ordinance 2001, which governs the Super Tax structure.
Under the proposed changes:
Companies earning up to PKR 150 million annually will continue to be exempt from Super Tax.
For firms with profits between PKR 150–200 million, the tax rate may be halved from 1% to 0.5%.
For earnings between PKR 200–250 million, the rate could drop from 2% to 1.5%.
For profits between PKR 250–300 million, the rate is expected to remain at 3%.
Companies earning above PKR 300 million will likely retain the 4% Super Tax rate.
These adjustments aim to provide relief to mid-tier businesses while ensuring that large, highly profitable corporations continue contributing to national revenue.
Sales Tax Hike on Small Vehicles
In a move that may impact the automobile sector, the government is considering increasing the sales tax on vehicles with engine capacities of 850cc or below from the current 12.5% to 18%. This measure is expected to generate additional revenue, particularly from the budget vehicle segment, which has seen rising demand in recent years.
Broader Tax Reforms in the Pipeline
The upcoming budget is also expected to introduce several other tax-related changes, including:
1. Duty Reductions on Imports and Local Manufacturing
Over 3,500 imported items and raw materials may see reduced taxes and duties to lower production costs and stimulate industrial growth.
Regulatory duties on imported goods could be slashed by 2% to 5%, easing the cost of essential imports.
Local manufacturers of vehicles, motorcycles, and tractors may benefit from lower duties, supporting domestic production.
2. Amendments to Income Tax Act
The 10th Schedule of the Income Tax Ordinance 2001 may be revised to facilitate imported raw materials, reducing tax burdens on industries reliant on foreign inputs.
Withholding taxes on construction materials could be reduced to encourage infrastructure development.
3. Property Sector Reforms
Withholding tax on property transactions may be abolished to simplify real estate dealings.
Federal excise duty (FED) on property purchases could be eliminated to stimulate housing demand.
Capital Gains Tax (CGT) might see an increase of 20-25% to curb speculative investments in real estate.
Economic Implications
Analysts suggest that the proposed Super Tax cuts could ease financial pressures on businesses, particularly in sectors recovering from economic slowdowns. However, the higher sales tax on small vehicles may dampen consumer demand in the auto sector, which has already faced challenges due to inflation and rising costs.
Meanwhile, the reduction in import duties is expected to lower input costs for industries, potentially reducing prices for consumers. The property tax reforms could revitalize the real estate market by making transactions more accessible.
Final Budget Approval Pending
While these proposals are under discussion, the final budget will be subject to parliamentary approval. The government is expected to present the full budget in the coming weeks, with implementation set for July 1, 2025.
Stakeholders across industries are closely monitoring developments, as the new fiscal policies could significantly impact Pakistan’s economic landscape in the year ahead.