Mutual Fund Debt Income Tax Hiked from 25% to 29%

Pakistan Budget 2025-26: Major Income Tax Changes, Corporate Levies, and Economic Reforms Announced

ISLAMABAD – Finance Minister Muhammad Aurangzeb on Monday presented additional budget proposals for the fiscal year 2025-26 in the National Assembly, unveiling key changes in income tax policies, corporate taxation, and economic development initiatives.

Increase in Income Tax on Mutual Fund Investments

One of the significant announcements was the proposal to increase the income tax rate on profits derived from the debt portion of mutual funds issued to companies. The tax rate will rise from 25 percent to 29 percent, aimed at enhancing revenue collection from corporate financial instruments.

New Corporate Taxes on Government Securities

Aurangzeb also proposed a 20 percent tax on profits earned by corporations and companies from investments in government securities. This move is intended to diversify the tax base and ensure higher contributions from profitable corporate sectors.

Poultry Sector to Face Excise Duty

In a bid to formalize the poultry sector, the finance minister introduced a Federal Excise Duty of Rs10 per day-old chick on hatchery chicks, marking a new tax measure targeting agricultural industries.

Balanced Budget with Focus on Revenue and Export Competitiveness

Aurangzeb emphasized that the 2025-26 budget is designed to control expenditure while significantly boosting tax revenues. He stressed the importance of tariff rationalization to reduce business costs and enhance export competitiveness.

Industrial and Electric Vehicle Policies Coming Soon

The government will soon announce a comprehensive Industrial Policy, with consultations for an Electric Vehicle Policy already underway to support sustainable transport.

Skill Impact Bond and Affordable Housing Initiatives

In partnership with the British Asian Trust, Pakistan will soon launch its first-ever Skill Impact Bond, a results-based financing mechanism linking funding to tangible employment outcomes. Additionally, a 20-year loan scheme for low-income individuals will be introduced to promote affordable housing across the country.

Income Tax Relief for Salaried Individuals

To ease the burden on the salaried class, the minister confirmed income tax relief for individuals earning between Rs600,000 and Rs1.2 million annually. The proposed tax rate for this bracket is reduced to 1 percent, down from the previously suggested 2.5 percent.

Tax on High-Value Pensions and Solar Panel Imports

Pensioners receiving annual pensions exceeding Rs10 million will now be taxed, while those over 75 years of age will remain exempt from all taxes. Moreover, the controversial 18 percent General Sales Tax (GST) on imported solar panels has been revised downward to 10 percent to encourage renewable energy adoption.

Safeguards Introduced in FBR’s Tax Fraud Provisions

Addressing concerns about the Federal Board of Revenue’s (FBR) enhanced powers under the Finance Bill, Aurangzeb detailed new safeguards. Cases involving tax fraud under Rs50 million will require a court warrant for arrests, and such action can only be taken after the accused fails to respond to three notices, attempts to flee, or tampers with records. A high-level FBR committee’s approval and court presentation within 24 hours are mandatory for all arrests.

Real Estate Transactions Regulated Under New Income Tax Rules

Section 114C of the Income Tax Ordinance introduces new restrictions on high-value real estate transactions by individuals whose declared financial resources do not align with their purchases. However, exemptions apply for:

• Residential properties worth up to Rs50 million

• Commercial properties worth up to Rs100 million

• Vehicles priced up to Rs7 million

These thresholds aim to regulate the property market while safeguarding middle-class buyers.

Regional Economic Risks and Government Preparedness

Concluding his address, Aurangzeb acknowledged the potential economic fallout from escalating Iran-Israel tensions, assuring parliament that the government is monitoring the situation and prepared to mitigate any negative impact on Pakistan’s economy.