The federal government has introduced a series of proposed amendments to Pakistan’s tax regulations, aiming to enhance revenue collection while promoting economic flexibility in key industries. The measures—ranging from tax credit revisions for coal mining projects in Sindh to an increase in tax rates on immovable property, dividends, and debt income—seek to strike a balance between industrial growth and fiscal sustainability.
Revised Tax Credit for Coal Mining in Sindh
Currently, coal mining projects in Sindh benefit from a 100% tax credit under Section 65F of the Income Tax Ordinance if all coal is supplied to power generation projects. A proposed amendment would relax this condition, allowing mining projects to sell coal to other sectors while receiving a proportional reduction in their tax credit based on the volume of coal sold outside the power sector.
The change aims to diversify the customer base of coal mining operations, enabling broader industrial use and improving commercial viability. By reducing dependency on a single sector, the policy ensures sustained economic activity while maintaining the initial objective of supporting coal supply to the power sector.
Increase in Advance Tax on Property Transactions
Under the current framework, an advance tax under Section 236C is deducted at the time of the sale of immovable property at rates of 3-4% for filers. The proposed revision seeks to raise this rate by 1.5% for filers, late filers, and non-filers, effectively increasing the government’s revenue intake from real estate transactions.
The move is designed to improve tax compliance in a sector with significant untapped potential while ensuring a fair and simplified tax structure for all categories of filers.
Higher Tax Rate on ‘Profit on Debt’
The advance tax deduction rate on profit earned from debt investments under Section 151 currently stands at 15%. The government has proposed raising this to 20%, with the tax functioning as a minimum liability for individuals and associations of persons (AOPs), while remaining adjustable for companies.
This change is expected to prevent tax arbitrage, ensure fairness, and eliminate the existing Rs. 5 million threshold, applying the revised rate uniformly across all taxpayers. Authorities estimate a revenue impact of Rs. 56,000 million in the upcoming fiscal year.
New Advance Tax on Coupon Washing Transactions
The government has proposed the introduction of an advance tax under Section 151A on profits derived from the trading of Pakistan Investment Bonds (PIBs) and Treasury Bills (T-Bills) before maturity.
PIBs and T-Bills are traded over the counter through banks rather than regulated exchanges, a practice distinct from Sukuk bonds, which fall under the National Clearing Company of Pakistan Limited’s (NCCPL) jurisdiction. In secondary market transactions, investors can sell these securities before maturity to capture capital gains, which currently remain untaxed. The amendment aims to curb tax leakage, ensuring capital gains from initial sales are properly accounted for in income tax returns.
The Federal Board of Revenue (FBR) estimates this change will generate Rs. 10,000 million in additional revenue.
Withdrawal of Pension Tax Exemption for High Earners
Previously, pension income was entirely exempt from taxation. Under the proposed amendments, pension payments exceeding Rs. 10 million would be subject to a 5% tax for individuals under 70 years of age. A new sub-section under Section 149 of the Income Tax Ordinance would require the deduction of advance tax on taxable pensions.
The measure seeks to improve fairness in the tax system by targeting high-value pensions without affecting lower-income retirees. Officials expect the policy to generate an additional Rs. 2,000 million in revenue.
Higher Tax Rate on Mutual Fund Dividends
Proposed revisions to Division-III, Part-I of the First Schedule seek to adjust tax rates on dividends derived from mutual funds, contingent on the proportional income from investments in debt securities and equities. Under the new structure, dividend income from debt securities will be taxed at 15%, while dividends from equity investments will face a 25% tax.
The government aims to create a fairer tax system by aligning the treatment of investment income with broader revenue targets while maintaining balanced incentives for various asset classes. The anticipated revenue impact is Rs. 14,000 million.
The proposed measures reflect the government’s broader objective of strengthening Pakistan’s fiscal framework while ensuring industrial growth and tax compliance across diverse sectors. If approved, these amendments could significantly impact revenue collection and economic policies in the upcoming fiscal year.