MAVEN MINDS

Assurance | Tax | Advisory | Outsourcing

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Assurance | Tax | Advisory | Outsourcing

PREFACE
This document presents a brief overview of the major changes enacted through the
Finance Act, 2025. It specifically highlights the amendments relating to the Income Tax,
Sales Tax, Federal Excise Duty, and ICT Service Tax laws. The changes introduced by the
Finance Act, 2025—passed by the National Assembly—are effective from 01 July 2025,
unless stated otherwise.

It is important to note that this document reflects not only our understanding and
interpretation of the legislation but also provides a comprehensive analysis of its
implications. When applying these provisions to any specific case, we strongly
recommend referring to and thoroughly reviewing the original text of the relevant statutes.
Consulting the original legislation ensures a more accurate understanding and enables
informed decision-making in line with the framework intended by the legislature.

This brief is also available on our official website: www.mavenminds.com.pk

30th June 2025

COPY RIGHTS 2022, ALL RIGHTS RESERVED

 CONTENTS
INCOME TAX 04

SALES TAX 15

FEDERAL EXCISE DUTY 33

ICT (TAX ON SERVICES) ORDINANCE, 2001 35

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SIGNIFICANT AMENDMENTS
INCOME TAX ORDINANCE, 2001

REVISED TAX RATES FOR SALARIED INDIVIDUALS

[PART I, FIRST SCHEDULE]

The Finance Act, 2025 has revised the tax slab rates applicable to salaried individuals, with the stated objective of
providing relief to lower-and middle-income groups while maintaining progressive taxation for higher income brackets.

The maximum marginal rate for salaried individuals remains unchanged at 35%. Revised slab rates offer tax relief to
individuals earning up to Rs. 3.2 million annually, easing the burden on middle-income taxpayers.

A comparison of amendment in slab rates for salaried individuals is given below:

TAXABLE INCOME EXISTING TAX RATES NEW TAX RATES

Up to Rs. 600,000 0% 0%

From Rs. 600,000 to Rs. 1,200,000 5% of the amount exceeding Rs. 600,000 1% of the amount exceeding Rs. 600,000

Rs. 30,000 + 15% of the amount Rs. 6,000 + 11% of the amount
From Rs. 1,200,000 to Rs. 2,200,000 exceeding Rs. 1,200,000 exceeding Rs. 1,200,000

From Rs. 2,200,000 to Rs. 3,200,000 Rs. 180,000 + 25% of the amount Rs. 116,000 + 23% of the amount
exceeding Rs. 2,200,000 exceeding Rs. 2,200,000

Rs. 430,000 + 30% of the amount Rs. 346,000 + 30% of the amount
From Rs. 3,200,000 to Rs. 4,100,000
exceeding Rs. 3,200,000 exceeding Rs. 3,200,000

Above Rs. 4,100,000 Rs. 700,000 + 35% of the amount Rs. 616,000 + 35% of the amount
exceeding Rs. 4,100,000 exceeding Rs. 4,100,000

The impact of the above-mentioned changes in slabs (other than surcharge and super tax) is illustrated as under:

DECREASE IN TAX
MONTHLY SALARY ANNUAL SALARY CURRENT TAX AMOUNT NEW TAX AMOUNT
AMOUNT

50,000 600,000 - - -
100,000 1,200,000 30,000 6,000 (24,000)
150,000 1,800,000 120,000 72,000 (48,000)
200,000 2,400,000 230,000 162,000 (68,000)
250,000 3,000,000 380,000 300,000 (80,000)
300,000 3,600,000 550,000 466,000 (84,000)
350,000 4,200,000 735,000 651,000 (84,000)
400,000 4,800,000 945,000 861,000 (84,000)

This amendment reflects the government’s attempt to balance fiscal consolidation with relief to salaried taxpayers amid
rising inflation and cost of living. The lowering of effective tax rates for lower income tiers is likely to offer meaningful relief
to a large segment of salaried individuals.

REDUCTION IN SURCHARGE FOR SALARIED INDIVIDUALS

[SECTION 4AB]

Through the Finance Act, 2024, a surcharge at the rate of 10% of income tax liability was introduced for individuals
(including salaried individuals) and AOPs having taxable income exceeding Rs. 10 million. This measure drew notable
concern from the salaried class — a segment widely recognized for its high level of tax compliance.

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In response to stakeholder representations and to alleviate the tax burden on compliant earners, the Finance Act, 2025
has reduced this surcharge from 10% to 9% for salaried individuals only. The surcharge rate for other categories of
individuals and AOPs remains unchanged at 10%.

This reduction, alongside the revision in tax slabs, indicates the government’s recognition of the economic pressures on
salaried taxpayers and an attempt to provide marginal relief. However, it should be noted that the surcharge remains a
substantial addition to the overall tax liability for high-income earners.

INTRODUCTION OF TAX CREDIT FOR LOW-COST HOUSING LOAN

[SECTION 63A]

The Finance Act, 2025 has introduced a new provision under Section 63A, allowing a tax credit to individuals in respect
of profit on debt or share in rent or appreciation paid on loans acquired for the construction or acquisition of one
personal residential house or flat. This reintroduces targeted relief that was previously available under repealed Sections
60C and 64, aligning with the government’s stated goal of promoting affordable housing.

Conditions and Calculation for Tax Credit:

1. The loan must be used only for one personal residence (self-occupied) — either a house with land area not
exceeding 2,500 square feet, or a flat with covered area not exceeding 2,000 square feet.

2. The loan must be obtained from a scheduled bank, a financial institution regulated by SECP, the Federal or a
Provincial Government, a Local Government, or a statutory body, or a public company listed on a registered stock
exchange in Pakistan.

3. Tax Credit is to be computed on average rate of tax on the lesser of:

Total profit on debt / rent / appreciation paid in the year, or

30% of taxable income.

4. No credit shall be allowed for any profit already deducted under the head "Income from Property" under Section
15A.

5. Once this credit is claimed for a specific house or flat, the individual cannot claim it again for any other residential
property for the next 15 tax years.

This provision is aimed at supporting the development of the housing sector by making financing more affordable for
first-time homeowners. The restriction of a single-use claim across 15 years seeks to ensure that the benefit is targeted
and not abused.

TAX ON PENSION / ANNUITY FROM FORMER EMPLOYER

[SECTION 12(2A), 149(1A), DIVISION I OF PART I, FIRST SCHEDULE]

Through the Finance Act, 2025, a new final tax regime has been introduced for individuals receiving pension, annuity, or
any supplement thereto from a former employer, where the aggregate amount exceeds Rs. 10 million in a tax year.

The exemptions pertaining to the commutation of pensions, as well as pensions from an Approved Pension Fund under
the Voluntary Pension System Rules, 2005, remain unchanged.

This marks a significant shift in policy, as pension income from former employer — historically exempt — will now attract
final tax liability if it crosses the specified threshold, along with corresponding withholding obligations on the payer.

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Applicability:

▪ Applies to individuals under the age of 70 years.

▪ Pension / annuity income must originate from a former employer (not from personal pension savings or investment
funds).

▪ Applies to payments made on or after July 1, 2025.

Tax Rates Prescribed:

ANNUAL PENSION INCOME RATE OF TAX

Up to Rs. 10 million 0%
Exceeding Rs. 10 million 5% on the amount exceeding Rs. 10 million

Such income may now also attract surcharge under Section 4AB and super tax, where applicable.

Important Exceptions:

1. Senior Citizens (≥ 70 years) - Individuals aged 70 years or more remainfully exempt from tax on pension / annuity
income, regardless of amount.

2. Re-employed Retirees - Where an individual continues to work for the former employer, or an associate of the former
employer, their pension income shall be taxed under normal slab rates (not final tax).

Withholding Requirement:

A new sub-section 149(1A) has been inserted requiring the payer to withhold tax at the above rates from such
pension / annuity payments made to individuals below 70 years of age.

The withholding shall be made after adjusting for:

▪ Any tax withheld deducted under other heads;

▪ Tax credit under section 61 (Charitable Donations) and Section 63 (Contribution to Approved Pension Fund)
claimed by the taxpayer;

▪ Any excess or short deduction from prior periods.

This change targets high-value pension recipients while protecting lower and moderate-income retirees.

RESTORATION OF TAX REBATE FOR FULL-TIME TEACHERS AND RESEARCHERS

[CLAUSE (3A) OF PART III, SECOND SCHEDULE]

The Finance Act, 2025 reinstates the long-standing 25% tax rebate for full-time teachers and researchers, resolving a key
area of controversy that had created uncertainty for educational professionals over the past two years.

Prior to the Finance Act, 2022, a 25% rebate on tax payable was available to full-time teachers and researchers.
This rebate was withdrawn in 2022, triggering significant confusion and disputes. Despite the repeal, many taxpayers
continued to claim the rebate, leading the FBR to issue recovery notices during 2024 for arrears dating back to July 2022.

In response to widespread appeals from the academic community and following a decision by the Federal Cabinet on
March 26, 2025, the rebate has now been formally restored.

This rebate is restored retroactively from 1 July 2022, ensuring that claims for tax years 2023, 2024, and 2025 remain valid.
But rebate will cease to apply from tax year 2026 onwards, as per sunset provision.

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This amendment provides long-awaited clarity and relief to the teaching and research community. Retroactive
applicability will enable affected individuals to defend past claims and seek redressal of tax demands already raised.
However, with the rebate discontinued from tax year 2026, stakeholders may once again face higher tax burdens going
forward.

REVISED SUPER TAX RATES FOR TAX YEAR 2026 ONWARDS

[SECTION 4C]

The Finance Act, 2025 reduces the Super tax rates under section 4C by 0.5% percentage for income slabs between
Rs. 200 million to Rs. 500 million, delivering moderate relief to high-income entities.

CURRENT TAX RATES NEW TAX RATES

INCOME UNDER SECTION 4C FOR TAX YEARS 2023,
FOR TAX YEAR 2022 FOR TAX YEAR 2026
2024 AND 2025 AND ONWARDS

Up to Rs. 150 million 0.0% 0.0% 0.0%

From Rs. 150 million to Rs. 200 million 1.0% 1.0% 1.0%

From Rs. 200 million to Rs. 250 million 2.0% 2.0% 1.5%

From Rs. 250 million to Rs. 300 million 3.0% 3.0% 2.5%

From Rs. 300 million to Rs. 350 million 4.0% 3.5%

From Rs. 350 million to Rs. 400 million 6.0% 5.5%

4.0%
From Rs. 400 million to Rs. 500 million 8.0% 7.5%

Above Rs. 500 million 10.0% 10.0%

WITHHOLDING TAX ON IMMOVABLE PROPERTIES

[SECTIONS 236C & 236K]

Under the Finance Act, 2025, advance tax on sale or transfer of immovable property under Section 236C has increased,
while advance tax on purchase of immovable property under Section 236K has reduced, particularly for persons
appearing on the Active Taxpayers List (ATL). The revised tax rates, based on transaction value and taxpayer status, are
as follows:

Section 236C – Sale / Transfer of Immovable Property

GROSS CONSIDERATION RECEIVED ATL FILERS ATL LATE FILERS NON-FILERS

4.5% 7.5%
Up to Rs. 50 million
(Previously 3%) (Previously 6%)

5% 8.5% 11.5%
Rs. 50m to Rs. 100 million
(Previously 3.5%) (Previously 7%) (Previously 10%)

5.5% 9.5%
Exceeding Rs. 100 million
(Previously 4%) (Previously 8%)

Section 236K – Purchase of Immovable Property

FAIR MARKET VALUE ATL FILERS ATL LATE FILERS NON-FILERS

1.5% 4.5% 10.5%

Up to Rs. 50 million
(Previously 3%) (Previously 6%) (Previously 12%)

2% 5.5% 14.5%
Rs. 50m to Rs. 100 million
(Previously 3.5%) (Previously 7%) (Previously 16%)

2.5% 6.5% 18.5%

Exceeding Rs. 100 million
(Previously 4%) (Previously 8%) (Previously 20%)

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ADVANCE TAX EXEMPTION ON SALE OF LONG-HELD RESIDENTIAL PROPERTY

[SECTION 159(1B)]

Section 236C of the Income Tax Ordinance, 2001 requires deduction of advance tax at the time of sale or transfer
of immovable property. However, where no taxable capital gain arises (e.g., on long-term personal use property),
taxpayers often face unnecessary tax deduction, leading to refund claims or compliance burdens.

To address this issue, the Finance Act, 2025 introduces a new sub-section (1B) under Section 159, allowing the
Commissioner Inland Revenue to issue an exemption certificate from deduction of advance tax under Section 236C if
all of the following conditions are met:

1. No taxable capital gain arises under Section 37(1A).

2. The property has been in the personal use for the last 15 years.

3. The property has been declared in the wealth statements for the past 15 years.

4. The property appears as residence for personal use in tax records.

An exemption certificate under this provision can be issued only once in 15 years.

The Finance Act, 2025 provides targeted relief to genuine long-term residential property holders by facilitating advance
tax exemption under Section 236C. This amendment reduces compliance for individual sellers and recognizes the
non-taxable nature of long-held, personal-use properties.

DISALLOWANCE OF BUSINESS EXPENDITURES REVAMPED

[SECTION 21]

Previously, Section 21(q) disallowed expenditure attributable to sales in proportion to the sales made to persons required
to be registered but not registered under the Sales Tax Act, 1990.

The Finance Act, 2025 has revamped the scope of inadmissible business expenditures by withdrawing the earlier
provision related to sales to unregistered persons under the Sales Tax Act, 1990 and introducing two new disallowance
measures aimed at curbing undocumented purchases and promoting digital transactions.

(i) Purchases from Non-NTN Holders

A new clause has been inserted to disallow 10% of the claimed expenditure attributable to purchases made from
persons who do not hold a valid National Tax Number (NTN).

However, in case of agricultural produce, this disallowance will only apply where agricultural produce is purchased from
a middleman. Direct purchases from growers may be exempt. Further, FBR may notify specific persons or classes of
persons via official Gazette who shall not be subject to this disallowance.

This measure is aimed at broadening the tax base by discouraging transactions with undocumented suppliers.

(ii) Expenditures Attributable to Cash Sales

Another disallowance has been introduced whereby 50% of the expenditure claimed in respect of sales shall be
disallowed, where taxpayer receives payment exceeding Rs. 200,000 against a single invoice otherwise than through
banking channel or digital means. Single invoice may contain one or more than one transactions of supply of goods or
provision of services.

This is a major policy step to encourage financial transparency and discourage undocumented cash transactions.

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DISALLOWANCE OF DEPRECIATION DEDUCTION

[SECTION 22]

The Finance Act, 2025 introduces a compliance-linked restriction on the admissibility of depreciation allowance under
Section 22 of the Ordinance. This amendment reinforces the linkage between tax withholding compliance and
admissibility of tax deductions on capital expenditures.

Where a taxpayer fails to deduct or deposit tax under Section 152 (payments to non-residents), or Section 153 (payments
to resident sellers), on amounts paid for the acquisition of a depreciable asset, no depreciation shall be allowed on such
asset in any tax year.

This effectively means that such an asset will be permanently excluded from the depreciation schedule for tax purposes
if withholding compliance is not ensured at the time of acquisition.

AMORTISATION OF INTANGIBLES WITH UNASCERTAINABLE USEFUL LIFE

[SECTION 24]

Previously, intangible asset with unascertainable useful life, were deemed to have a useful life of 25 years, and
amortisation expense was allowed accordingly.

Effective from tax year 2026, the deemed useful life has now been reduced to 15 years, which would allow
accelerated amortisation deductions over a shorter period.

REDUCTION IN CARRY FORWARD PERIOD FOR MINIMUM TAX ADJUSTMENT

[SECTION 113]

The Finance Act, 2025 introduces a further limitation on the ability of taxpayers to adjust minimum tax paid under Section
113 against future tax liabilities.

Where minimum tax paid under Section 113 exceeds the normal tax payable in a tax year, the excess amount is allowed
to be carried forward and adjusted against future tax liabilities.

Previously, this excess was adjustable over the next three tax years. Now, the carry forward period has been reduced to
two tax years immediately succeeding the tax year in which such tax was paid.

RESTRICTION ON SET-OFF OF BUSINESS LOSSES AGAINST PROPERTY INCOME

[SECTION 56]

The Finance Act, 2025 has revoked the relief introduced by the Finance Act, 2021, which allowed adjustment of business
losses against income from property. This means that business losses sustained during a tax year can no longer be
adjusted against rental income earned in the same tax year.

Before Finance Act, 2021, set-off of business losses was allowed across all heads of income except income under the
head “Salary” and “Income from property”. Therefore, business losses could not be adjusted against rental income.

From tax year 2022 onwards, adjustment of business losses against income from property was allowed.

The Finance Act, 2025 has reversed the Finance Act, 2021 amendment, thereby prohibiting the set-off of business losses
against income under the head “Income from Property” and reverting to the restrictive regime that existed prior to 2021.

TAX ON PAKISTAN-BASED DIGITAL TRANSACTIONS VIA E-COMMERCE PLATFORMS

[SECTION 6A]

The Finance Act, 2025 has introduced Section 6A in the Income Tax Ordinance, 2001, bringing Pakistan-based
e-commerce transactions under the Final Tax Regime (FTR). This major reform aims to broaden the tax base by
targeting the growing digital economy and formalizing tax collection on digitally ordered goods and services
delivered from within Pakistan using locally operated online platforms including online marketplace or websites.

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Export proceeds already subject to tax under Section 154 (Export of Goods), and Section 154A (Export of Services) are
excluded from this regime.

SECTION 2: KEY DEFINITIONS INTRODUCED

The term ‘Digitally Delivered Services’ is defined as any service delivered over the internet or electronic networks, where
the delivery is automated and requires minimal or no human intervention including music, audio and video streaming
services, cloud services, online software applications services, services delivered through online inter-personal
interaction i.e., tele medicines, e-learning etc., online banking services, architectural design services, research and
consultancy reports, accounting services in the form of digital files or any other online facility.

The term ‘E-Commerce’ is defined as sale or purchase of goods and services conducted over computer networks by
methods specifically designed for the purpose of receiving or placing of orders either through websites, mobile
applications or online marketplace having digital ordering features by using either mobile phone, iPad, Tablet or
automated computer-to-computer ordering system.

Further, the existing definition of ‘Online Marketplace’ is expanded to include online interfaces that facilitate, for a fee,
the direct interaction between multiple buyers and multiple sellers via digital orders for supply of goods and services, with
or without the platform taking economic ownership of the goods or providing or rendering the services that are being
sold.

Final Tax Rates

The Finance Act, 2025 has introduced the following tax rates in Division IVA of Part I and Division III of Part III of First
Schedule, for chargeability and withholding on payments made in respect of digitally ordered goods and services:

MODE OF PAYMENT WITHHOLDING AGENT FINAL TAX RATE

Digital Means / Banking Channels Payment Intermediary 1% of gross amount
Cash on Delivery (CoD) Courier Service 2% of gross amount

Gross amount includes sales tax, if any

If the recipient of the amount (online marketplace / E-commerce platforms) is not on the Active Taxpayer List (ATL), the
applicable withholding rates under Section 6A are subject to 100% increase.

SECTION 153: WITHHOLDING OF TAX

Corresponding amendments are also made in Section 153 of the Ordinance, whereby the following persons have
been established as agents for collecting and depositing the above tax:

▪ Every payment intermediary at the time of processing payment through digital means, on behalf of a seller of
digitally ordered goods or services through locally operated e-commerce platforms (including websites); and

▪ Every courier business providing courier services collecting cash from a buyer under Cash on Delivery (CoD)
payment terms on behalf of a seller for the supply of digitally ordered goods and services through e-commerce
platforms (including websites).

An exclusion from deduction of WHT under Section 153(1) has been provided when tax has been collected by the
above-mentioned collection agents.

In addition, definitions of “payment intermediary” and “courier service” being prescribed person, have been added for
clarity and legal recognition.

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The term “courier service” means any specialized entity that provides fast, secure and often tracked transportation of
documents, packages and small freight, typically offering door-to-door delivery solutions of goods within specific
timeframes and in case of digitally ordered goods in e-commerce delivery and collection of cash (CoD) on behalf of
the seller and such delivery service provider includes but not limited to:

▪ Logistics services;

▪ Ride-hailing services;

▪ Food delivery platforms; and

▪ E-commerce services.

The term “payment intermediary” means any third party entity including a banking company, financial institution, a
licensed foreign exchange company or payments gateways that facilitate the transfer of funds or payment instructions
between two or more parties to enable, process, route or settle payments in a financial transaction, without being the
ultimate source or recipient of the payment.

SECTION 165C: REPORTING & FILING OBLIGATIONS

The following reporting and filing requirements are imposed for online marketplaces, payment intermediaries and
courier services:

1. Quarterly Withholding Statements by Payment Intermediary / Courier:

Every payment intermediary and courier service responsible for deducting tax as referred above would be required to
file a withholding statement for tax deduction regarding sale of digitally ordered goods and services for each quarter of
a tax year in the prescribed form setting out:

▪ Name, identification number (NTN/CNIC) and address of the seller;

▪ Transaction date, unique identifier (invoice number) and total transaction value;

▪ Total amount of tax deducted at the time of payment to the seller; and

▪ Any other prescribed particulars.

2. Monthly Vendor Statements by Online Marketplace:

Every online marketplace in Pakistan would be required to submit a monthly statement containing:

▪ Name, address, Sales Tax and Income Tax registration number of every vendor registered on its platform supplying
digitally ordered goods and services in e-commerce;

▪ Transaction-wise and aggregated monthly turnover of each vendor; and

▪ The amount deposited into the vendor’s bank account against such sale transactions.

Other provisions of Section 165 relating to timing of filing of statements, revision of statement, extension of time,
reconciliation of withholding statement etc. would be applicable to the above-mentioned statements as well.

SECTION 181: MANDATORY TAX REGISTRATION

Section 181 has been amended to make it mandatory for sellers of digitally ordered goods or services from within
Pakistan using online marketplace, to be registered for Income Tax.

Additionally, Online Marketplaces and Courier Services must ensure vendors are registered under Income Tax laws.
Non-compliant vendors must not be allowed to use the platform.

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SECTION 182: PENAL PROVISIONS

To enforce the above provisions, following penalties are also added:

SECTION TO WHICH OFFENSE

OFFENCES PENALTIES
HAS REFERENCE
Where a seller of digitally ordered goods ▪ Rs. 500,000 for the first default.
or digitally delivered services through an
online marketplace fails to obtain ▪ Rs. 1,000,000 for every subsequent Section 181
mandatory income tax registration. default.

Where a banking company, payment

gateway, or courier service fails to
deduct or deposit tax on payments for 100% of the amount of tax involved.
digitally ordered goods or digitally Section 153(2A)
delivered services via an e-commerce
platform.

This reform signifies the FBR’s serious efforts to formalize the e-commerce sector, enhance documentation, and curb tax
evasion in digital marketplaces. Enforcement through banks and logistics players creates an ecosystem of indirect
compliance pressure. Timely compliance and accurate reporting by e-commerce platforms and intermediaries is now
legally enforceable, backed by significant penalties.

FULL WITHHOLDING TAX EXEMPTION FOR PUBLIC LIMITED COMPANIES

[SECTION 153(4)]

Under the earlier version of Section 153(4), the Commissioner Inland Revenue was empowered to grant a reduced rate
withholding certificate on payments for sale of goods, services, and contracts only if the withholding tax was not treated
as minimum tax.

However, the law explicitly stated that such reduction shall not exceed 80% of the rate specified in the relevant Division.

The Finance Act, 2025 has empowered the Commissioner to grant full exemption (i.e., 100% reduction) from withholding
tax specifically to public limited companies, provided the conditions of non-minimum tax and inquiry are satisfied.

INCREASE IN WITHHOLDING TAX RATES ON PAYMENTS TO RESIDENT PERSONS

[SECTION 153(1) AND DIVISION III, PART III OF FIRST SCHEDULE]

The Finance Act, 2025 introduces significant upward revisions in withholding tax rates applicable on various categories
of services and contractual payments to resident persons under Section 153(1).

OLD WHT
NATURE OF PAYMENT RECIPIENT NEW WHT TAX RATE
TAX RATE

IT services / IT enabled services Company / other than company 4% 4% (No change)

Electronic & print media (advertising) Company / other than company 1.5% 1.5% (No change)

Advertising services Company 1.5% 1.5% (No change)

Specified services (other) Company / other than company 4% 6%

Other than specified services Company 9% 15%

Other than specified services Other than company 11% 15%

Execution of contract Sports person 10% 15%

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No change has been made in the withholding tax rates for IT services and media advertising, likely to support the digital
economy and press industry. However, the hike to 15% for general service providers (non-specified) and sports contracts
marks a sharp increase, which could discourage documentation and incentivize underreporting.

INCREASE IN WITHHOLDING TAX RATES FOR PERMANENT ESTABLISHMENTS (PEs) OF NON-RESIDENTS

[SECTION 152(2A) AND DIVISION III, PART III OF FIRST SCHEDULE]

The Finance Act, 2025 significantly enhances the withholding tax rates applicable on various categories of services and
contractual payments to Permanent Establishments (PEs) of non-resident persons. This step aligns the tax burden on PEs
of non-residents more closely with that on resident service providers and contractors, aiming to ensure equity and
broader tax coverage.

OLD WHT NEW WHT

NATURE OF PAYMENT RECIPIENT
TAX RATE TAX RATE

IT services / IT enabled services Company / other than company 4% 4% (No change)

Specified services (excluding IT-related) Company / other than company 4% 8%

Other than specified services Company 9% 15%

Other than specified services Other than company 11% 15%

Execution of contract Sports person 10% 15%

ENHANCEMENT IN WITHHOLDING TAX RATES ON PROFIT ON DEBT

[SECTION 151]

The Finance Act, 2025 has increased the rate of withholding tax on profit or yield from 15% to 20% on:

▪ Profit / yield received by a person from a banking company or financial institution on an account or
deposit maintained with such company or institution.

▪ Profit / yield received by a person (other than individuals) from government securities (other than National Savings
Scheme or Post Office Savings Account).

OLD WHT NEW WHT

NATURE OF INCOME
TAX RATE TAX RATE

Yield or profit paid by a banking company or financial institution on an account or 15% 20%
deposit maintained with such company or institution

Yield or profit on government securities (excluding NSS / Post Office) paid to any person 15% 20%
other than an individual

In all other cases 15% 15%

TAX ON DIVIDEND INCOME FROM MUTUAL FUNDS

[SECTION 150 READ WITH DIVISION III, PART I, FIRST SCHEDULE]

Previously, dividend from mutual funds is taxable at the rate of 15% except for dividend received from mutual funds
deriving 50% or more income from profit on debt which is taxable at the rate of 25%.

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Under the Finance Act, 2025, final tax at the rate of 25% and 15% shall be charged on dividend in case of all mutual funds
in proportion to income derived from average annual investments in debt securities and equities respectively.

Further, where a corporate entity receives a dividend relating to the debt income portion of the fund, the same will be
taxed at the corporate tax rate (29%).

INCREASE IN ADVANCE TAX ON CASH WITHDRAWALS BY NON-FILERS

[SECTION 231AB]

Under the previous provisions of Section 231AB, banks are required to collect advance tax at the rate of 0.6% on cash
withdrawals exceeding PKR 50,000 in a single day from persons whose names are not on the Active Taxpayers List (ATL).

The Finance Act, 2025 has enhanced this rate to 0.8%. This increase will apply to all non-filers making cumulative daily
withdrawals exceeding Rs. 50,000.

This amendment is aimed at increasing the cost of non-compliance and further incentivizing taxpayers to file returns and
be on ATL.

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SIGNIFICANT AMENDMENTS
THE SALES TAX ACT, 1990 [ST ACT]

ABETTOR
[SECTION 2(1)]

The Finance Act, 2025 introduces a new clause (1) in Section 2 of the ST Act to define the term “abettor” as follows:

‘Abettor’ means a person who intentionally abets or connives in tax fraud as defined in clause (37) of Section 2 or in the
commission of any offence warranting prosecution under this Act, and includes a person who—

a. Prepares, or causes to be prepared with authorization of the registered person, invoices for false claim of input tax
adjustment; or

b. Allows use of bank account held or operated by him for abetting tax fraud or other offence warranting prosecution
under this Act or unauthorizedly or illegally maintains or operates business bank account in other registered person’s
name.

Prior to the Finance Act, 2025, the ST Act did not define the term “abettor.” While tax fraud and prosecutable offences
were recognized and certain penalties were prescribed under Section 33(13) of the ST Act for those who abetted or
connived such offences, there was no clear statutory definition identifying who qualified as an “abettor.” This lack of
definitional clarity limited consistent enforcement against individuals facilitating or aiding in tax fraud.

Implication and Context

▪ Introduces a formal legal basis to hold accountable persons who intentionally assist in committing tax fraud or
related offences.

▪ The inclusion of examples (such as preparing fake invoices or misuse of bank accounts) offers practical illustrations
of conduct falling under this provision.

▪ Emphasizes the mental element of intent, ensuring that only deliberate facilitators are exposed to prosecution
under this clause.

▪ Upon conviction by the Special Judge, an abettor shall be liable to imprisonment up to 5 years or fine up to Rs. 10
million or both, regardless of the amount of tax evaded or sought to be evaded.

Analysis

The amendment fills a critical gap by addressing indirect participation in tax fraud — a common challenge in
enforcement. It brings enablers and collaborators within the prosecutable net, even if they are not the principal
offenders.

▪ The use of the word “intentionally” is central and governs the entire definition, including the two illustrative cases
introduced through “includes a person who.” This ensures that only those who knowingly and deliberately commit
or aid fraud can be held liable.

▪ It draws a clear line between willful misconduct and inadvertent error, aligning with fundamental principles of
criminal liability.

▪ Businesses and professionals—particularly those in accounting, finance, logistics, and advisory roles—should review
their controls and exposures, as misuse of financial channels or documentation can now carry criminal
consequences if done knowingly.

This amendment is likely to enhance deterrence and facilitate more robust prosecution of collaborative tax evasion
schemes.

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CARGO TRACKING SYSTEM AND E-BILTY MECHANISM

[SECTION 2(4A), 2(9B) & 23]

The Finance Act, 2025 introduces two new definitions in Section 2 of the ST Act:

“Cargo Tracking System” means a digital system notified by the Board for electronic monitoring and tracking of goods
transported within or across the territory of Pakistan, for the purpose of tax enforcement, compliance and prevention of
tax evasion.

“E-bilty” means a digital transport document generated through the Cargo Tracking System as prescribed by the Board,
to accompany goods during their movement.

Prior to the Finance Act, 2025, the ST Act did not define or regulate the use of a cargo tracking system or e-bilty. Although
traditional transport documents (e.g., paper bilties) were used in practice, there was no statutory requirement for a
digital transport document or centralized tracking mechanism for goods movement.

Implication and Context

The inclusion of these definitions marks a significant move towards digitization and enforcement-driven logistics
monitoring:

▪ It grants legal recognition to the FBR's Cargo Tracking System, enabling it to digitally monitor goods in transit for tax
enforcement and compliance.

▪ The introduction of the e-bilty formalizes the requirement for a digitally generated transport document, ensuring
traceability and control over the movement of goods across the supply chain.

▪ E-Bilty would be linked with the corresponding tax invoice by the registered person.

▪ These changes are likely to be implemented in phases, initially targeting risk-prone sectors, inter-provincial
movement, or high-value consignments.

▪ The measure aligns with FBR’s broader digitization drive and may integrate with IRIS, PSW, POS, or digital invoice
reporting systems.

Analysis

This legislative development reflects international best practices where tax authorities deploy technology-driven logistics
control to minimize tax evasion, under-invoicing, and smuggling. Key considerations:

▪ By embedding these definitions in the ST Act, the FBR now has a clear statutory mandate to enforce digital
tracking through binding notifications or rules.

▪ The e-bilty system will likely become a compliance prerequisite for the lawful movement of taxable goods,
particularly for tax verification and reconciliation.

▪ Businesses engaged in manufacturing, distribution, import, trading, or transport must begin assessing the readiness
of their dispatch and logistics systems.

To prepare for compliance, taxpayers should:

▪ Monitor for the formal notification of the FBR-prescribed Cargo Tracking System;

▪ Plan for integration of dispatch operations with the notified system;

▪ Prepare to generate and maintain e-bilties for each consignment, once mandated;

▪ Ensure that goods movement records and tax invoices can be aligned with the e-bilty format for consistency and
traceability.

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Failure to comply may result in seizure of goods in transit, disallowance of input tax, imposition of monetary penalties, or
other enforcement actions.

TAXATION OF DIGITALLY ORDERED GOODS THROUGH E-COMMERCE

[SECTIONS 2(5ABA), 2(9C), 2(18A), 2(20A), 3(3)(C), 3(7A), 14(1A & 1B), 26(1) & ELEVENTH SCHEDULE]

The Finance Act, 2025 introduces a comprehensive taxation framework for the supply of digitally ordered goods
from within Pakistan, significantly changing the way e-commerce transactions are taxed. The new regime establishes
statutory definitions, withholding obligations, reporting requirements, registration conditions for sellers, and specific
compliance responsibilities for online marketplaces, couriers, and payment intermediaries involved in facilitating
e-commerce sales.

Key Definitions Introduced

“Courier” means any entity engaged in the delivery of goods and collection of cash on behalf of a seller, including
logistic and ride-hailing services.

“E-Commerce” means sale or purchase of goods conducted over computer networks by methods specifically designed
for the purpose of receiving or placing of orders either through websites, mobile applications, or online marketplaces
having digital ordering features by using mobile phones, automated computer-to-computer ordering systems, or any
similar device.

“Online Marketplace” means online interfaces that facilitate, for a fee, the direct interaction between multiple buyers
and multiple sellers via digital orders for supply of goods, with or without the platform taking economic ownership of the
goods that are being sold.

“Payment Intermediary” means a banking company, any financial institution including a licensed foreign exchange
company or payment gateway that facilitates the transfer of funds or payment instructions between two or more parties
to enable, process, route, or settle payments with respect to goods in a financial transaction, without being the ultimate
source or recipient of the payment.

Sales Tax Collection and Registration Framework for Digitally Ordered Goods

For digitally ordered taxable goods supplied from within Pakistan during the course of e-commerce, sales tax at the rate
of 2% of gross value shall be:

▪ Deducted and deposited by the payment intermediary, where payment is digital;

▪ Deducted and deposited by the courier, where payment is made on a Cash on Delivery (CoD) basis.

The 2% tax so collected shall be treated as the final discharge of sales tax liability for:

▪ Cottage industry, as defined under Section 2(5AB); and

▪ Retailers other than Tier-I retailers.

Such suppliers (i.e. cottage industry and retailers liable to pay sales tax via electricity bills) are not required to obtain sales
tax registration. However, all other suppliers—for whom the 2% deduction does not constitute final discharge—including
non-resident persons, are required to obtain sales tax registration and comply with the full scope of obligations under the
ST Act.

What Constitutes Supply of Digitally Ordered Goods from Within Pakistan

The phrase “digitally ordered goods from within Pakistan” refers to transactions where the ordering process is conducted
through digital means (e.g., websites, apps, online marketplaces) and the physical supply of goods originates from
within Pakistan. This includes both resident and non-resident sellers where the goods are dispatched from locations inside
Pakistan.

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Here are a few examples to illustrate the scope:

▪ A resident Pakistani seller based in Lahore selling goods through an online marketplace (e.g., Daraz) to a customer
in Islamabad is considered to be supplying digitally ordered goods from within Pakistan. The transaction is subject
to 2% sales tax deduction, either by the payment intermediary (for digital payments) or the courier (in case of cash
on delivery).

▪ If a resident seller in Karachi sells goods via online platform to a customer in Dubai, but the goods are physically
dispatched from Karachi, it still constitutes a supply from within Pakistan. While this may not attract the 2%
withholding (as it qualifies as an export subject to meeting certain conditions), it would be treated as a zero-rated
supply under the sales tax law.

▪ A non-resident person (e.g., a company based in UAE) who owns goods stored in a warehouse in Lahore and
sells them to customers in Pakistan via an online platform or website, is also considered to be supplying digitally
ordered goods from within Pakistan. Since the supply originates from within Pakistan, the non-resident is subject
to the 2% withholding mechanism, where the tax is deducted by the courier (in case of CoD) or by the
Bpayment intermediary (for digital payments).

▪ Conversely, if a non-resident person (e.g., from Dubai) sells goods to a Pakistani customer, but the goods are
shipped directly from Dubai, the transaction does not fall within the scope of 'from within Pakistan'. Such
cross- border e-commerce may fall under import-related provisions, but it is not subject to the 2% withholding
regime outlined in the Eleventh Schedule for domestic e-commerce.

▪ If a seller in Pakistan uses an international platform (e.g., Shopify, Amazon Global) to sell goods stored in Pakistan
and delivers them to Pakistani customers, the supply is from within Pakistan, and the 2% tax regime applies regardless
of the platform’s origin.

Implication and Context

▪ This regime replaces the earlier system where only non-active taxpayers were subject to 1% withholding when
selling through online marketplaces. Registered and active vendorswere previously responsible for charging and
depositing sales tax at applicable rates themselves.

▪ The new mechanism applies universally, regardless of the vendor’s registration status.

▪ Although cottage industry supplies are exempt under Serial No. 3 of Table 2 of the Sixth Schedule to the ST Act, the
new 2% collection mechanism is applied to such supplies when sold digitally. This creates an implicit override of the
exemption without amending the Sixth Schedule, which may lead to legal ambiguities or disputes unless addressed
via a clarifying provision or savings clause.

▪ Non-digital orders (e.g., via phone calls, in-store visits, or manual orders) do not fall within this regime, even if a
courier is involved in delivery and cash collection.

Analysis

The Finance Act, 2025 represents a paradigm shift in how e-commerce is regulated and taxed. The burden of
compliance, tax collection, and reporting has been shifted upstream to online marketplaces, couriers, and payment
intermediaries.

Online marketplaces and couriers are now legally prohibited from allowing any person to use their services for
e-commerce transactions unless the person holds:

▪ A valid National Tax Number (NTN); and

▪ Where applicable, a Sales Tax Registration Number (STRN).

This obligation requires online marketplace and couriers to:

▪ Revamp their seller onboarding procedures;

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▪ Collect NTN and STRN; and

▪ Potentially restrict access to informal, home-based, or small-scale sellers who may not yet be tax registered-thereby
reducing business volume and limiting marketplace diversity.

Online marketplaces, couriers, and payment intermediaries must file supplier-wise monthly statements detailing the
supplier's identity, amounts paid, tax due, and any other information or prescribed particulars for taxable supplies of
digitally ordered goods from within Pakistan.

While this move strengthens enforcement and expands the tax base, it also introduces commercial and administrative
burdens, and adds compliance complexity for e-commerce service providers. Moreover, it may raise questions under
Article 18 of the Constitution of Pakistan, which guarantees the right to conduct lawful trade, business, or profession.
Blanket restrictions on access to e-commerce services without procedural safeguards or alternative compliance routes
could be seen as disproportionate or exclusionary.

For vendors not covered under the final regime—such as Tier-1 retailers, manufacturers, or importers—the 2% deduction
applies as a withholding tax, which is adjustable against their output tax liability. These vendors remain fully responsible
for filing returns, charging the applicable rate of sales tax, and maintaining complete compliance with all provisions of
the ST Act.

The law mandates that non-resident persons selling digitally ordered goods (not covered under final tax regime) from
within Pakistan would need to obtain sales tax registration. While legally enforceable, this may be impractical in absence
of local presence, representation, or banking limitations. Many jurisdictions resolve this by introducing simplified or final
tax regimes for non-residents—something FBR may need to consider for feasibility and enforcement.

Businesses must now determine whether their supplies fall under the final discharge regime or are subject to full
compliance, coordinate with intermediaries to validate and reconcile the tax deducted, monitor their vendor base for
NTN/STRN compliance, and remain vigilant for FBR notifications and operational guidelines to support a smooth
transition.

Failure to adapt may result in mismatches, penalties, or enforcement actions. The reform, while transformative, requires
robust implementation and stakeholder facilitation to succeed.

RETAIL PRICE
[SECTION 2(27)]

The Finance Act, 2025 introduces specific additions to the definition and treatment of 'retail price' under Section 2(27) of
the ST Act, as outlined below.

▪ In respect of aerated waters, beverages, mineral water, and fruit juices, the Finance Act, 2025 allows a
standardized 5% reduction in the retail price—inclusive of sales tax, federal excise duty, and all other taxes
(excluding income tax)—to account for chilling or similar charges when calculating sales tax. This provision attempts
to align with commercial realities—where such goods are commonly sold chilled—while ensuring that any
deductions for chilling or similar charges remain standardized and do not lead to unwarranted tax avoidance.

▪ The FBR is now empowered to fix the retail price of goods listed in the Third Schedule to the ST Act through a
notification in the official gazette, wherever it deems necessary. This adds an enforcement tool to address market
manipulation or pricing discrepancies.

▪ For imported goods falling under the Third Schedule, the retail price shall not be less than 130% of the customs value
determined under Section 25 of the Customs Act, 1969, inclusive of customs duties and federal excise duty. This aims
to curb under-invoicing.

Implication and Context:

▪ The uniform 5% deduction for chilling and similar charges aims to standardize the treatment of post-manufacturing
service elements in consumer beverages, ensuring consistency in determining the base for sales tax. However, this
fixed rate may not fully account for cases where such costs exceed 5%, potentially leading to under-recognition of
genuine business expenses.

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▪ Empowering FBR to fix retail prices introduces a price control mechanism to counter artificial under-declaration,
particularly in goods sold under the Third Schedule where sales tax is charged on retail price rather than
transaction value.

▪ While the 130% minimum retail price requirement for imported goods aims to curb under-invoicing and protect
revenue, it may result in inflated retail price declarations in cases where actual margins are lower. This could lead
to excessive sales tax liability, especially for low-margin importers, and may not reflect true market conditions.

Analysis

This amendment enhances compliance, and revenue protection. It recognizes the practical cost components added
by retailers (e.g., chilling), while still ensuring that the declared retail price does not fall below a statutory threshold in
the case of imported goods.

The authority granted to FBR for price fixation introduces flexibility to intervene in high-risk sectors and prevent erosion
of the sales tax base through manipulated pricing.

Businesses dealing in beverages, imports under the Third Schedule, or products with additional handling charges should:

▪ Adjust their price declarations and invoicing mechanisms in line with the revised retail price formula;

▪ Monitor notifications from FBR regarding fixed retail prices;

▪ Ensure that their retail pricing for imports aligns with the 130% minimum threshold.

The mandatory 130% minimum retail price requirement for imported goods, though aimed at curbing under-invoicing
and protecting revenue, may be viewed as unjust, arbitrary, or even confiscatory in certain cases. By enforcing a flat
markup irrespective of industry-specific margins or actual transactional values, it lacks proportionality and fails to
account for low-margin business models. This blanket treatment may compel inflated retail declarations and excessive
sales tax liabilities, distorting true market dynamics. In the absence of a rebuttal mechanism or sectoral calibration, the
measure could potentially be challenged as arbitrary and violative of constitutional safeguards, which protect against
arbitrary actions and ensure the right to fair treatment and freedom of lawful trade/business.

TAX FRAUD
[SECTION 2(37) & SECTION 33]

The Finance Act, 2025 replaces the earlier definition of 'tax fraud' under clause (37) of Section 2 of the ST Act, with an
enhanced and more inclusive version. The new definition captures a wide range of intentional, dishonest, and
manipulative conduct aimed at evading or suppressing tax obligations. It specifically includes acts such as: use or
preparation of false, forged, or fictitious documents (returns, statements, annexures, invoices), fictitious input tax
claims, issuance of tax invoices without supply, tempering with or destroying of any material evidence or documents,
manipulation of return filing systems, false compliance with Section 73 through artificial bank routing, suppression of
taxable supplies, making taxable supplies without issuing tax invoices or obtaining registration, non-payment of withheld
tax beyond three months, and dealing in goods liable to confiscation under the ST Act.

The amended law imposes stringent penal consequences for committing or abetting any such tax fraud. Any person
involved in these offences shall, upon conviction by the Special Judge, be liable to imprisonment for a term of up to five
years. Additionally, the person must pay the amount equal to the confirmed tax loss as reported under Section 37B(11),
along with a penalty equal to 100% of the tax loss and default surcharge under Section 34.

The amendment aims to significantly enhance the deterrence mechanism by codifying a broader scope of fraudulent
conduct and linking it with strong penal consequences. It empowers enforcement authorities with a legal foundation to
prosecute complex tax evasion cases, including those involving digital manipulation and structured collusion.

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EXPANSION OF FBR’S POWERS TO RESTRICT INPUT TAX ADJUSTMENT

[SECTION 8B(4)]

The Finance Act, 2025 empowers the FBR to utilize a data-driven automated risk management system to restrict input tax
adjustment by deferring certain input tax claims or by prescribing higher or lower adjustment limits.

However, a registered person may challenge such restrictions by filing an application along with supporting documents
before the concerned Commissioner, who is required to decide the matter within thirty days of the filing.

Implication and Analysis

▪ This amendment gives FBR the power to dynamically restrict input tax using automated risk management systems,
moving beyond static limits like the 90% rule in Section 8B(1).

▪ Input tax may now be deferred or subjected to customized limits based on the taxpayer’s risk profile or
compliance behavior.

▪ Taxpayers adversely affected can seek redress by submitting an application to the concerned Commissioner.

▪ While it strengthens enforcement, this change may lead to cash flow/liquidity issues for compliant businesses due
to delayed input tax claims.

▪ Taxpayers should enhance compliance visibility, record-keeping, and reconciliation controls to proactively
manage the risk of system-based deferrals.

▪ This approach allows dynamic enforcement of input tax restrictions based on taxpayer behavior or risk level,
potentially improving tax compliance and collection but increasing administrative complexity and uncertainty for
businesses flagged by the system.

BEST JUDGEMENT ASSESSMENT

[SECTION 11D]

The Finance Act, 2025 amends Section 11D of the ST Act to empower the Officer of Inland Revenue, through a
non-obstante clause, to make a best judgement assessment of sales tax liability based on value addition on reasonable
grounds. This authority may be exercised where:

▪ A person is liable to be registered for sales tax on the basis of tax withheld under Section 236G of the Income Tax
Ordinance, 2001; and

▪ Fails to furnish a return in compliance with a statutory notice.

To facilitate such assessment, the officer may utilize information obtained from purchase data reported under Section
236G of the Income Tax Ordinance.

This amendment significantly enhances the FBR’s enforcement toolkit by allowing presumptive assessment using
third-source transactional data where direct compliance is absent. It targets supply chain participants who remain
outside the formal sales tax registration despite evidentiary indicators of taxable activity.

The provision is designed to curb non-compliance by:

▪ Bringing unregistered businesses into the tax net;

▪ Establishing a deterrent against ignoring registration obligations; and

▪ Enabling tax authorities to estimate tax liability even in the absence of self-declared returns.

By allowing best judgment assessment based on purchase-side data, this measure shifts the burden onto non-compliant
persons to rebut presumed tax liability, thereby reinforcing administrative efficiency and broadening the revenue base.

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ASSESSMENT AND RECOVERY OF TAX

[SECTION 11E]

Earlier, Section 11E empowered an Officer of Inland Revenue (not below the rank of Assistant Commissioner) to assess
and recover sales tax in cases where tax was not levied, short levied, or erroneously refunded — including instances
involving collusion or a deliberate act.

The Finance Act, 2025 substitutes sub-section (1) of Section 11E, omitting the phrase “by way of collusion or deliberate
act” and explicitly provides that Section 11E shall not apply to the extent of proceedings initiated under Section 37A of
the ST Act, which deals with inquiries pointing to the commission of tax fraud and offences warranting prosecution.

Implication and Analysis

▪ The amendment narrows the scope of Section 11E, making it applicable to civil routine assessment and recovery.

▪ The change enhances procedural clarity by preventing overlap between civil assessment and criminal investigation
routes. Tax authorities and taxpayers must now assess the nature of the violation to determine the correct
procedural path—Section 11E for routine non-compliance or Section 37A for prosecutable offences (i.e. tax fraud).

EXTENSION IN NORMAL LIMITATION PERIOD FOR PASSING ASSESSMENT ORDERS

[SECTION 11G(2)]

The Finance Act, 2025 extends the standard limitation period for passing assessment orders under Sections 11D, 11E, and
11F of the ST Act — from 120 days to 180 days — from the date of issuance of the show cause notice.

Implication and Analysis

▪ Tax authorities now have 180 days (instead of 120) as the normal timeframe to complete assessment proceedings.

▪ This amendment provides additional time to address complex or data-intensive cases.

COMPULSORY REGISTRATION BY TAX AUTHORITIES

[SECTION 14(2A)]

The Finance Act, 2025 inserts a new sub-section (2A) into Section 14 of the ST Act, empowering the Commissioner Inland
Revenue, or any other officer authorized by the Board, to compulsorily register a person for sales tax. This action can be
taken where the officer has reason to believe, based on inquiry or available information, that the person is liable to be
registered but has failed to apply voluntarily.

The law mandates that an opportunity of being heard must be provided before finalizing such compulsory registration.
Earlier, this enforcement power existed only under Rule 6(1) of the Sales Tax Rules, 2006, and was not part of the parent
statute. The insertion into the main ST Act strengthens the legal backing for compulsory registration and aligns the
operational powers of tax authorities with statutory provisions.

This amendment seeks to enhance tax net expansion, particularly targeting unregistered businesses that remain
outside the formal economy despite meeting registration criteria. It also provides a statutory remedy for passive
non-compliance, where non-registration is deliberate or due to avoidance, without waiting for voluntary disclosures or
delayed enforcement.

COERCIVE MEASURES FOR NON-REGISTRATION UNDER SALES TAX LAW

[SECTIONS 14AC, 14AD & 14AE]

The Finance Act, 2025 significantly strengthens the enforcement framework against non-registered persons who are
liable to register under the ST Act, by inserting three new coercive provisions: Sections 14AC, 14AD, and 14AE. These
provisions empower tax authorities to impose progressive and escalating deterrents—ranging from temporary
suspension of bank accounts to sealing of business premises—for failure to obtain registration.

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SECTION 14AC – TEMPORARY AND PERMANENT SUSPENSION OF BANK ACCOUNTS

This section authorizes the Commissioner Inland Revenue to intermittently suspend, and eventually permanently bar, the
operation of bank accounts of a person who:

1. Is believed to be engaged in taxable supplies without registration;

2. Was issued three consecutive opportunities of hearing for obtaining registration; and

3. Failed to obtain registration despite the above.

Key elements include:

▪ Three-day intermittent suspension, repeatable up to three times with weekly intervals;

▪ Permanent freezing of accounts if non-compliance persists;

▪ Reversal of suspension within two working days upon registration;

▪ Right of appeal lies with the Chief Commissioner Inland Revenue within 30 days of receipt of order or decision;

▪ Enforceability is subject to notification by the FBR.

This measure is designed to exert financial pressure on persistent non-registrants while ensuring procedural fairness
through notice and appeal rights.

SECTION 14AD – BAR ON TRANSFER OF IMMOVABLE PROPERTY

Where a non-compliant person continues to remain unregistered 15 days after the final bank account suspension order,
the Chief Commissioner is empowered to constitute a tripartite committee (comprising the Chief Commissioner,
Commissioner and a member from the Chamber of Commerce or a Trade Associations) to:

▪ Issue a public notice and give a personal hearing;

▪ Recommend:

Imposition of a bar on property transfer, or

Withdrawal of bank account restrictions, where justified.

The committee shall provide an opportunity to obtain registration within 15 days prior to recommendation.

Upon recommendation and after lapse of 15 days, the Commissioner may direct property registration authorities to bar
any transfers of immovable property of the non-compliant person. Removal of such a bar must occur within two working
days upon registration.

Right of appeal lies with the Chief Commissioner Inland Revenue who is not member of the committee within 30 days of
receipt of order or decision.

Enforceability of this Section is subject to notification by the FBR.

This adds a new dimension of deterrence through public and reputational exposure and by targeting immovable asset
mobility.

SECTION 14AE – SEALING PREMISES, SEIZING PROPERTY, AND APPOINTMENT OF RECEIVER

As a last resort, where action under Sections 14AC and 14AD has failed to compel registration, the Chief Commissioner
may:

▪ Seal business premises;

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▪ Seize movable property; or

▪ Appoint a receiver to manage the taxable activity.

However, such actions are subject to:

▪ Issuance of a public notice specifying action date;

▪ A hearing conducted by a committee (including industry representation) in open court;

▪ Public disclosure of the enforcement action via FBR’s website and newspapers.

Upon compliance through registration, the Chief Commissioner is required to revoke the order within two working days.
Any person aggrieved by the decision or order of the Chief Commissioner regarding the sealing of premises, seizure of
movable property, or appointment of a receiver may file a representation before the FBR within thirty days of receipt of
such decision or order.

Enforceability of the aforesaid provisions of this Section is subject to notification by the FBR.

Implication and Analysis

These newly enacted provisions reflect an aggressive enforcement strategy to bring non-compliant businesses into the
tax net. While the graduated nature of the enforcement—from mild (bank account suspension) to severe (property
seizure and business closure)—ensures proportionality, it also reflects the government’s increasing reliance on economic
pressure points to enforce compliance.

By incorporating opportunity of hearing, involvement of trade bodies, and public disclosure, the law aims to strike a
balance between enforcement and fairness. However, the powers, if not exercised judiciously, may result in disruption
of legitimate businesses and potential litigation.

Businesses—especially those operating informally or without registration—should treat these provisions as a serious call to
action to regularize their status and avoid coercive consequences. FBR’s ability to freeze accounts and bar property
transfers significantly alters the compliance landscape and marks a new phase of data-driven, enforcement-heavy tax
administration in Pakistan.

SUSPENSION AND BLACKLISTING

[SECTION 21(2A)]

The Finance Act, 2025 introduces a new sub-section (2A) to Section 21 of the ST Act, laying down a structured timeline
and procedural safeguards in cases involving suspension and potential blacklisting of a registered person.

Under the new provision:

▪ The Commissioner is now required to issue a show cause notice within ten days of the issuance of a suspension order.

▪ Upon receiving a reply, and after providing an opportunity of hearing, the Commissioner must either:

Revoke the suspension, if satisfied; or

Pass a speaking order for blacklisting, within thirty days of receiving the reply.

This speaking order shall be appealable before the Commissioner (Appeals); however, under the law, the registered
person also has the option to directly file an appeal before the Appellate Tribunal Inland Revenue without first availing
the right of appeal before the Commissioner (Appeals).

This amendment introduces definitive timelines and addresses procedural gaps and delays observed under the previous
framework, where prolonged suspension periods and the absence of conclusive decisions had raised concerns.
Furthermore, the power of the Chief Commissioner to modify an order of suspension or blacklisting—whether on his own
motion or upon application—has been withdrawn, thereby consolidating decision-making and appellate processes
within a more structured and accountable framework.

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INTEGRATION OF ELECTRONIC INVOICING SYSTEM WITH FBR’S COMPUTERIZED SYSTEM

[SECTION 23(5) & 23(6)]

The Finance Act, 2025 introduces statutory backing to the integration of electronic invoicing systems with the FBR’s
computerized infrastructure by inserting new sub-sections (5) and (6) into Section 23 of the ST Act.

Under the new framework:

▪ The FBR is empowered, through notification in the official Gazette, to require any person or class of persons to
integrate their electronic invoicing systems with its computerized system for real-time sales reporting, in such mode
and manner and from such date as may be prescribed.

▪ A licensed integrator will be responsible for carrying out such integration for the registered persons identified under
sub-section (5), following procedures and technical specifications to be notified by the Board.

▪ Additionally, all Tier-1 retailers are now explicitly required to integrate their retail outlets with the FBR’s computerized
system in the prescribed manner and timeline, shifting the rule-based requirement into the substantive provisions of
the law.

Earlier, such integration was mandated through delegated legislation under the Sales Tax Rules, 2006. The current
legislative insertion effectively gives this obligation the force of law, enhancing its enforceability and underscoring the
government’s intent to institutionalize real-time transaction monitoring through digital means.

This legislative change not only strengthens the legal framework for electronic sales reporting but also indicates a move
towards standardized integration processes—potentially through designated integrators—to ensure uniform
compliance and data security.

The question arises whether already integrated retailers (under earlier rules) are now required to re-integrate their retail
outlets using the licensed integrators. This point remains unaddressed and may require formal clarification. We
understand this distinction could have significant compliance and operational implications for existing Tier-1 retailers.

These changes, while progressive in terms of tax administration modernization, will require timely action by affected
businesses to ensure compliance—particularly those that have yet to upgrade their invoicing infrastructure or align with
designated integrators.

REVISION OF RETURN WITHOUT COMMISSIONER’S APPROVAL

[SECTION 26(3A)]

The Finance Act, 2025 introduces a new sub-section (3A) to Section 26 of the ST Act, to provide conditional relaxation
from obtaining the Commissioner’s approval for filing a revised sales tax return.

As per the newly inserted provision:

“Unless restricted by the compliance risk management system of the Board, the approval of the Commissioner shall not
be required if the revised return is filed within sixty days of filing of the original return and the tax payable therein is more
than the amount paid or the refund claimed is less than the amount claimed under the return sought to be revised.”

This amendment enables taxpayers to self-revise their returns within a 60-day window—without seeking prior
approval—provided the revision results in higher tax payable or a lower refund claim, thereby reducing the risk
of revenue loss to the exchequer. This is a facilitative step, intended to promote voluntary correction by compliant
taxpayers, especially in cases of underreporting or conservative refund claims.

However, the facilitation is now subject to a critical condition:

The revised return must not be restricted by the compliance risk management system (CRMS) of the FBR.

This caveat marks a significant procedural shift. Under the previous framework, such revisions—if filed within 60 days and
meeting the conditions of increased tax liability or reduced refund—were allowed without the need for Commissioner’s

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approval, without being contingent on any risk filtering. The current amendment introduces a system-driven oversight
layer, whereby the ability to revise returns independently may be blocked or flagged if the taxpayer’s profile or
transaction pattern falls within a predefined risk bracket determined by the CRMS.

In practical terms, this means that taxpayers with high-risk ratings, suspected anomalies, or flagged transactional behav-
ior may be barred from utilizing this simplified revision route. This mechanism reflects the growing reliance on automated
data intelligence in tax administration, but may also raise concerns regarding transparency and procedural clarity
unless the risk parameters are well defined and disclosed.

APPOINTMENT OF EXPERTS AND AUDITORS

[SECTION 32B]

The Finance Act, 2025 inserts a new Section 32B into the ST Act, which provides explicit statutory authority for the
appointment of experts and auditors to support tax administration functions. Under this provision, the FBR or the
Commissioner Inland Revenue may appoint as many experts as they consider necessary to assist in matters such as
audits, investigations, litigation, or valuation, thereby institutionalizing the use of external technical expertise in sales tax
enforcement.

In addition, the FBR is empowered to appoint auditors either through direct hiring or through third-party arrangements,
including payroll firms. These auditors may be granted powers to assist the designated Inland Revenue Authorities under
Section 30(1)(a) to (f) of the ST Act and Section 29(1)(a) to (f) of the Federal Excise Act, 2005. The appointments will be
governed by such terms, conditions, limitations, and restrictions as the FBR may prescribe, thereby providing flexibility
while ensuring regulatory control.

This legislative development is intended to enhance the technical capacity of the tax administration, particularly in
complex sectors where specialized knowledge is essential. By embedding this framework within the primary law, the
amendment strengthens FBR’s ability to rely on independent professionals, promoting improved compliance
outcomes and aligning with international best practices. At the same time, it introduces a need for safeguards around
accountability and confidentiality, especially when third parties are involved in sensitive enforcement actions.

OFFENCES, PENALTIES AND PUNISHMENT

[SECTION 33]

The Finance Act, 2025 introduces an expansion in the penalty regime under the ST Act, particularly targeting
e-commerce facilitation, digital compliance, and tax fraud enforcement.

To begin with, new penalties have been introduced for online marketplaces, couriers, and payment intermediaries in
two specific areas:

Non-submission of prescribed monthly statements within due date: A penalty of PKR 300,000 is imposed on the first
default when the failure persists for two consecutive months. For every subsequent default within the same year, the
penalty escalates to PKR 1 million. This underscores the importance of compliance with reporting obligations
introduced under the new e-commerce tax regime.

Facilitating unregistered persons in e-commerce transactions: Online marketplaces and couriers that allow unregistered
persons to use their platforms for e-commerce are now liable to a penalty of PKR 500,000 on the first default and PKR 1
million on each subsequent instance. This aims to reinforce the statutory requirement that only NTN and, where
applicable, STRN holders may operate through such platforms.

Further, the penal provisions related to tax fraud have been updated to reflect the redefined and expanded scope of
"tax fraud" introduced under clause (37) of Section 2. Upon conviction by a Special Judge, the offender may face:

▪ Imprisonment for up to five years,

▪ Repayment of the confirmed tax loss,

▪ A 100% penalty on the tax loss, and

▪ Imposition of default surcharge under Section 34.

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Additionally, Section 13A has been inserted to penalize abetment or connivance in tax fraud or any offence warranting
prosecution. A person guilty of such conduct may face imprisonment up to five years, or fine up to PKR 10 million, or both,
upon conviction by a Special Judge. This serves to deter accomplice behavior in fraudulent tax practices.

The Finance Act, 2025 also extends the existing penalties for non-integration with FBR’s computerized system, previously
limited to Tier-1 retailers, to all registered persons who are required to integrate but fail to do so. This aligns with the
statutory elevation of integration requirements introduced under Section 23(5) & (6).

Lastly, the Finance Act, 2025 introduces a new offence relating to e-Bilty compliance. Any person who fails to generate,
tampers with, or forges an e-Bilty—required under the digital monitoring system—shall be liable to a penalty of PKR
50,000, along with recovery of any tax evaded through such contravention. This provision complements the growing
emphasis on end-to-end supply chain visibility and traceability through digital documentation.

Overall, the amendments signal the government’s firm intent to digitize enforcement, impose strict liability for
non-compliance across the e-commerce and logistics ecosystem, and curb tax fraud through procedural and penal
tightening.

ENHANCED INVESTIGATIVE POWERS

[[SECTION 37(4)]

The Finance Act, 2025 introduces a new sub-section (4) into Section 37 of the ST Act, formally empowering officers of
Inland Revenue with powers equivalent to those of a civil court under the Code of Civil Procedure, 1908. This statutory
empowerment applies specifically for inquiries conducted under the ST Act.

Under the new provision, officers may:

▪ Summon and enforce the attendance of any person and examine them on oath;

▪ Require the discovery and production of documents; and

▪ Receive evidence on affidavits.

By incorporating these judicial-like powers directly into the ST Act, the amendment significantly strengthens the legal
framework for tax enforcement and evidence gathering. It is designed to enhance the effectiveness of inquiries and
facilitate the detection of non-compliance or fraud through more formalized evidentiary procedures.

However, while the move is intended to ensure procedural rigor and improve the quality of investigations, it also raises
important considerations regarding checks and balances. Granting such broad powers—especially in the absence of
robust oversight mechanisms—could expose taxpayers to risks of undue pressure or arbitrary enforcement. The possibility
of misuse underscores the importance of applying these powers with transparency, proportionality, and accountability.

Overall, the provision aims to streamline enforcement efforts and reduce evasion, but its real-world impact will largely
depend on how responsibly the powers are exercised and whether appropriate safeguards are in place to prevent
abuse.

REVAMP OF INVESTIGATION AND ARREST FRAMEWORK

[SECTION 37A & 37B]

The Finance Act, 2025 substitutes Sections 37A and 37B of the ST Act, revamping the framework for inquiry, investigation,
and arrest in cases involving tax fraud or other offences warranting prosecution under the ST Act. These changes
formally empower Inland Revenue officers to initiate investigations and arrest persons suspected of committing
prosecutable tax offences.

The amended law also prescribes the procedure to be followed upon arrest, introducing safeguards such as
documentation of arrest reasons, production before a magistrate, and timelines to prevent misuse of authority.

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ACCESS TO DIGITAL SUBSCRIBER INFORMATION

[SECTION 38B(5)]

The Finance Act, 2025 introduces a new sub-section (5) to Section 38B of the ST Act, granting enhanced
investigative powers to the Commissioner Inland Revenue. Under this provision, the Commissioner is now
empowered—notwithstanding anything to the contrary in any other law—to issue a written notice to internet service
providers, telecommunication companies, and the Pakistan Telecommunication Authority (PTA) to obtain subscriber
information, including data related to Internet Protocols (IPs), in connection with inquiries or investigations related to tax
fraud.

This amendment marks a significant extension of FBR’s access to digital footprints and user data, enabling tax authorities
to trace online activities, e-commerce transactions, and other digital behaviors that may signal tax evasion or fraudulent
conduct. While intended to strengthen enforcement in an increasingly digitized economy, this measure also raises
important considerations regarding data privacy, proportionality, and the need for clear procedural safeguards to
prevent overreach or misuse of such powers.

MONITORING OR TRACKING BY ELECTRONIC OR OTHER MEANS

[SECTION 40C]

The Finance Act, 2025 expands the scope of Section 40C, which relates to the monitoring or tracking of goods by
electronic or other means. The amendment requires the deployment of monitoring equipment for production
monitoring and video analytics before taxable goods are removed or sold by manufacturers or other persons.

This enhancement broadens the FBR’s powers to implement pre-clearance surveillance at the production or supply
level, aligning with the Cargo Tracking System also introduced under the Finance Act, 2025. It reflects the government’s
move toward greater real-time oversight of manufacturing and supply chains to curb underreporting and tax evasion.

APPEALS TO COMMISSIONER (APPEALS)

[SECTION 45-B (1)]

The Finance Act, 2025 substitutes sub-section (1) of Section 45B of the ST Act, revising the appellate structure for
challenging decisions made by the Inland Revenue authorities. Under the amended provision, any person—other than
a State-Owned Enterprise (SOE)—aggrieved by an order under Sections 10, 11A, 11D, 11E, 11F, 21, 33, 34, and 66 may file
an appeal before the Commissioner Inland Revenue (Appeals) within 30 days of receiving the order.

Importantly, the amendment removes the earlier pecuniary threshold of Rs. 10 million that previously determined
whether an appeal should go to the Commissioner (Appeals) or directly to the Tribunal. Now, the right to appeal is based
on the nature of the order and the sections listed, not the amount involved.

A key feature of the new framework is the option for registered persons to directly file an appeal before the Appellate
Tribunal, bypassing the Commissioner (Appeals). This is particularly advantageous for taxpayers seeking early disposal or
wishing to avoid the delay often associated with a two-tier appellate process.

That said, the traditional two-tier structure—starting with the Commissioner (Appeals) and proceeding to the
Tribunal—still holds significance, especially in complex cases where initial factual clarification and departmental
engagement may be beneficial.

The overall amendment aims to streamline appellate access, enhance flexibility, and reduce procedural hurdles for
taxpayers in pursuit of legal remedies.

APPEALS TO THE APPELLATE TRIBUNAL INLAND REVENUE

[SECTION 46(1)]

The Finance Act, 2025 substitutes Section 46 of the ST Act, revamping the appellate jurisdiction of the Appellate Tribunal
Inland Revenue (ATIR).

Under the revised provision, an appeal may be preferred to the Tribunal within 30 days of receipt of the order by:

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▪ Any officer of Inland Revenue, not below the rank of Additional Commissioner, or any person aggrieved by an
order passed by the Commissioner (Appeals) under the ST Act or its rules; or

▪ Any person (other than a State-Owned Enterprise) directly aggrieved by an order of the Officer of Inland Revenue,
where the second proviso to Section 45B applies (i.e., in cases where the person bypasses the Commissioner
(Appeals).

This amendment reflects a shift from the earlier pecuniary threshold-based regime, where only appeals involving tax or
refund amounts exceeding Rs. 10 million could be taken up by the Tribunal. The new framework delinks the appellate
jurisdiction from monetary limits, focusing instead on the type of order and the statutory route taken by the taxpayer.

Another notable omission is that orders passed by the Board (FBR) are no longer appealable before the Tribunal, a right
that previously existed but has now been withdrawn under the revised provision.

These changes aim to streamline the appellate structure, reduce ambiguity in forum selection, and promote efficiency
in resolving disputes.

REFERENCE TO HIGH COURT

[SECTION 47(1)]

The Finance Act, 2025 substitutes Section 47 of the ST Act, which governs references to the High Court on questions of
law arising out of orders of the Appellate Tribunal Inland Revenue (ATIR).

Under the new provision, either the aggrieved person or the Commissioner may, within sixty days of communication of
the ATIR’s order, submit a reference to the High Court, in the prescribed manner, along with the statement of the case
and the complete Tribunal record, stating any question of law involved.

This substitution introduces two key changes:

▪ Extension of Limitation Period: The statutory time limit for filing a reference to the High Court has been extended
from 30 to 60 days, allowing more time for preparation and submission.

▪ Streamlining Appellate Path: Previously, due to the pecuniary threshold that limited access to the ATIR (i.e., appeals
involving tax or refund amounts not exceeding Rs. 10 million were not appealable before the Tribunal),
Commissioner (Appeals)’s orders were directly challengeable before the High Court. That indirect appellate
route has now been rationalized, since the removal of the pecuniary threshold (under amended Sections 45B and
46) ensures that all substantive disputes pass through the Appellate Tribunal before reaching the High Court.

These changes aim to streamline the appellate hierarchy, ensure consistency in legal interpretation, and reduce
jurisdictional ambiguity caused by parallel or premature references. It would also reduce the burden on the court. The
extended time frame also enhances procedural fairness for both taxpayers and the tax department in pursuing legal
remedies.

INSPECTION OF AUDIT FIRM

[SECTION 58C]

The Finance Act, 2025 introduces a new Section 58C into the ST Act, empowering the Chief Commissioner to take
regulatory recourse where concerns arise regarding the reliability of audited financial statements.

Under this provision, if the Chief Commissioner Inland Revenue has reason to believe that the audited accounts of a
registered person — who is subject to audit under the Companies Act, 2017 — do not reflect a true and fair view of the
taxpayer’s sales, purchases, and corresponding sales tax liability, he or she may, with the approval of the FBR, refer the
audit firm that issued the audit certificate to the Audit Oversight Board (AOB) for inspection.

This measure seeks to:

▪ Ensure accountability of audit firms whose certification may contribute to underreporting or misrepresentation of
sales tax obligations.

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▪ Encourage higher audit quality standards by allowing coordination between FBR and AOB — the regulatory
body established under the Companies Act for oversight of auditors of public interest entities.

▪ Address systemic risks where weak or compromised audits may enable non-compliance or tax evasion.

The referral mechanism is not an independent disciplinary process by FBR, but rather a trigger for regulatory review by
the competent audit oversight authority, preserving institutional boundaries while strengthening enforcement through
inter-agency coordination.

This insertion reinforces the trust and integrity of audited accounts as a basis for tax compliance and sends a strong signal
regarding the expectation of professional due diligence from statutory auditors engaged by registered persons.

INPUT TAX ADJUSTMENT ON SUPPLIES TO UNREGISTERED PERSONS

[SECTION 73(4)]

The Finance Act, 2025 makes a key amendment to the restrictions on input tax adjustment for supplies made to
unregistered persons. Previously, under the ST Act, if a registered person made supplies exceeding Rs. 10 million in a tax
period or Rs. 100 million in a financial year to unregistered buyers, a proportionate input tax adjustment was disallowed
on such supplies.

Through the Finance Act, 2025, these fixed monetary thresholds have now been withdrawn. In their place, the FBR has
been empowered—subject to the approval of the Federal Government—to prescribe applicable thresholds by way of
notification.

This shift from fixed to flexible thresholds provides the FBR with room to adopt a more dynamic and sector-specific
approach. It is likely that the Board may introduce multiple thresholds for different sectors, considering factors such as
supply chains, business practices, and the level of documentation and registration within each industry.

CONDONATION OF TIME LIMIT – INTRODUCTION OF AGGREGATE CAP AND EXCEPTIONAL PROVISION

[SECTION 74]

The Finance Act, 2025 introduces important provisos to Section 74 of the ST Act, which deals with the condonation of
time limits for actions required under the ST Act.

Previously, the FBR was empowered to condone time limits prescribed under the ST Act, with no specific statutory
cap on the duration of such condonation. However, courts in various judgments had expressed concern over the
open-ended nature of this power, emphasizing that the absence of clear boundaries could not be interpreted to allow
indefinite extensions.

In response to such judicial observations and to ensure greater legal certainty, the Finance Act, 2025 now places a
ceiling on this authority. Specifically, it provides that:

▪ The aggregate maximum period for which time may be condoned—whether by the FBR or the Commissioner—shall
not exceed two years, regardless of any other provision of law or any judicial pronouncement to the contrary.

▪ In exceptional cases, where there is reason to believe that a significant loss to the exchequer or the taxpayer
has occurred due to an act of omission or commission, a committee notified by the Board may, after granting an
opportunity of hearing, condone the limitation for a further period as it deems appropriate.

This amendment seeks to strike a balance between flexibility and finality—introducing a general cap on condonation
while also preserving the ability to respond to exceptional cases through a structured and accountable mechanism.

RETAIL PRICE REGIME EXTENDED TO ADDITIONAL IMPORTED CONSUMER GOODS

[THIRD SCHEUDULE]

The Finance Act, 2025 expands the scope of the Third Schedule to the ST Act by adding several imported consumer
goods, which will now be subject to sales tax on the basis of retail price, instead of the previously applicable ad valorem
basis. This change effectively places these items within the retail price regime, often resulting in a higher assessed tax
and improved documentation of consumer-facing goods.

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DESCRIPTION WITHHOLDING AGENT

Import of pet food including of dogs and cats sold in
2309.1000
retail packing

Import of coffee sold in retail packing 0901.1100, 0901.1200, 0901.2100, 0901.2200, 0901.9000
& 2101.1120

Import of chocolates sold in retail packing 1704.9010, 1806.2090, 1806.3100, 1806.3200 & 1806.9000

Import of cereal bars sold in retail packing 1904.1010, 1904.1090, 1904.2000, 1904.3000 & 1904.9000

TRIBAL AREA EXEMPTIONS REPLACED WITH REDUCED RATES

[SIXTH SCHEDULE & EIGHTH SCHEDULE - TABLE I]

The Finance Act, 2025 has withdrawn the time-bound sales tax exemptions previously available for supplies and imports
related to Pakistan’s tribal areas. These exemptions, which were set to expire on 30th June 2025, have not been
extended, and the corresponding entries have now been omitted from the Sixth Schedule of the ST Act.

The following transactions are no longer exempt and will now be subject to sales tax:

1. Supply of goods within the tribal areas;

2. Import of plant, machinery, and equipment for installation in the tribal areas; and

3. Import of industrial inputs by the industries located in the tribal areas.

To allow a gradual transition, the law provides for a phased imposition of sales tax, with the rate increasing annually as
follows (subject to conditions specified for imports):

TAX PERIOD APPLICABLE SALES TAX RATE

July 2025 – June 2026 10%

July 2026 – June 2027 12%

July 2027 – June 2028 14%

July 2028 – June 2029 16%

This change signifies a move toward integrating tribal area taxation with the national regime while offering businesses a
transitional period to adjust to the new tax burden.

WITHDRAWAL OF EXEMPTION AND INCLUSION IN REDUCED RATE REGIME – PHOTOVOLTAIC CELLS

[SIXTH SCHEDULE & EIGHTH SCHEDULE – TABLE I]

The Finance Act, 2025 has withdrawn the sales tax exemption previously available on the import or local supply of
photovoltaic cells, whether or not assembled in modules or made up into panels, as listed under the Sixth Schedule.
These goods have now been added to the reduced rate regime under the Eighth Schedule (Table I) and are subject to
sales tax at the rate of 10%. This amendment reflects a policy shift from full exemption to a concessionary rate structure,
aiming to balance revenue considerations with ongoing support for the renewable energy sector.

EXTENSION OF ELECTRICITY SUPPLY EXEMPTION FOR TRIBAL AREAS

[SIXTH SCHEDULE – TABLE I]

The Finance Act, 2025 extends the sales tax exemption available under the Sixth Schedule in respect of:

▪ Supply of electricity to all residential and commercial consumers located in the tribal areas; and

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▪ Supply of electricity to industries established and operational before May 31, 2018 (excluding steel and ghee/cooking
oil industries) in these regions.

This exemption, originally set to expire on June 30, 2025, has now been extended by one year, up to June 30, 2026,
continuing the relief to consumers and qualifying industries in these areas.

BROADENING OF SALES TAX EXEMPTION ON LIFE-SAVING DRUGS

[SIXTH SCHEDULE – TABLE I]

Earlier, the import of Cystagon, Cysta Drops, and Trientine capsules was exempt from sales tax only when imported for
personal use. The Finance Act, 2025 broadens the scope of this exemption by allowing tax-free import of these drugs for
non-personal (i.e., institutional or commercial) use as well. This measure is likely aimed at facilitating broader access to
critical medication for patients suffering from rare or chronic conditions.

EXEMPTION ON IMPORT OR LEASE OF AIRCRAFTS BY PIA

[SIXTH SCHEDULE – TABLE I]

The Finance Act, 2025 grants exemption from sales tax on the import or lease of aircrafts and parts thereof falling under
PCT headings 8802.1200, 8802.3000, and 8802.4000, specifically when undertaken by Pakistan International Airlines
Corporation Limited (PIACL). This amendment aims to support the national flag carrier by reducing its procurement costs
and facilitating the modernization or maintenance of its fleet through tax relief.

EXEMPTION ON LOCAL SUPPLY OF IRON AND STEEL SCRAP

[SIXTH SCHEDULE – TABLE II]

The Finance Act, 2025 amends the existing sales tax exemption on the local supply of iron and steel scrap. Earlier, the
exemption was available generally to all such supplies, excluding only those made by manufacturer-cum-exporters of
recycled copper authorized under the Export Facilitation Scheme, 2021.

Through the Finance Act, 2025, the scope of exclusions from the exemption has been expanded and made more
specific. Now, the exemption shall not apply to:

▪ Supplies made directly by manufacturer-cum-exporters of recycled copper (authorized under the Export
Facilitation Scheme, 2021) to registered steel melters subject to such apportionment, conditions and restriction as
may be specified by the Board through a STGO, and

▪ Supplies made directly by importers (verifiable through the goods declaration form) to registered steel melters
subject to such apportionment, conditions and restrictions as may be specified by the Board through a STGO.

WITHDRAWAL OF REDUCED RATE ON CINEMATOGRAPHIC EQUIPMENT

[EIGHTH SCHEDULE - TABLE I]

The Finance Act, 2025 withdraws the reduced rate of 5% sales tax available under Serial No. 53 of Table I of the Eighth
Schedule for import of cinematographic equipment. This concession was available only for imports made during the
period commencing on July 1, 2018, and ending on June 30, 2023. With the expiry of this timeframe, such imports
became subject to the standard sales tax rate of 18%.

The formal omission of this entry now through the Finance Act, 2025 appears largely declaratory in nature, as the
concessional regime had already lapsed by the operation of law. This amendment therefore functions as a statutory
clean-up of time-barred provisions, without effecting any material change to the prevailing tax treatment.

WITHDRAWAL OF REDUCED SALES TAX RATE ON LOCALLY MANUFACTURED CARS UP TO 850CC

[EIGHT SCHEDULE – TABLE I]

Earlier, locally manufactured or assembled motorcars with engine capacity up to 850cc were subject to sales tax at a
reduced rate of 12.5%. The Finance Act, 2025 withdraws this concession, bringing such vehicles under the standard sales
tax regime. Consequently, these motorcars are now liable to sales tax at the standard rate of 18%, aligning them with
the general rate applicable to other categories of vehicles.

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SIGNIFICANT AMENDMENTS
THE FEDERAL EXCISE ACT, 2005 [FE ACT]
ENABLING PROVISION FOR LIABILITY OF EXCISE DUTY IN CASE OF EXCISABLE ITEMS
[SECTION 3(5)(e)]

The Finance Act, 2025 introduces an enabling provision in sub-section (5) of Section 3 of the FE Act, allowing liability for
payment of duty to be placed on any person — including a middleman — as may be specified under the law, in cases
not already covered under clauses (a) to (d) of the said sub-section.

This amendment appears to address a legislative gap created by the Finance Act, 2023, wherein excisable items
mentioned in Table III of the First Schedule to the FE Act lacked clarity regarding the person liable to pay duty. In the
absence of a specified liability provision, enforcement difficulties arose — most notably in the case of excise duty on the
supply of white crystalline sugar, which was challenged before the Sindh High Court on the grounds of the missing liability
clause.

SEIZURE AND CONFISCATION MEASURES RATIFIED: FROM ORDINANCE TO FINANCE ACT, 2025
The Finance Act, 2025 has ratified provisions earlier introduced via the Tax Laws (Amendment) Ordinance, 2025, thereby
formally incorporating additional enforcement and administrative powers into the FE Act.

Specifically, the FE Act now empowers Inland Revenue authorities to seize and confiscate goods being sold without
affixing or affixing counterfeit tax stamps, barcodes, banderoles, stickers, labels or bar codes, as required under Section
45A of the FE Act.

In addition, the law authorizes the FBR to appoint officers from the revenue departments, not below the rank of Naib
Tehsildar or Excise and Taxation Officer, to act as Officers of Inland Revenue for specific enforcement functions under
Sections 26 and 27(1) of the FE Act. This authority is exercisable through official notification and is subject to conditions
prescribed therein.

A notable refinement made through the Finance Act, 2025 compared to the earlier Ordinance, is that such delegation
is now limited to revenue officials, whereas the Ordinance had allowed broader delegation to any Federal or Provincial
Government employee or officer.

COMMISSIONER INLAND REVENUE (APPEALS) – APPEALS FRAMEWORK REVISED

[SECTION 33]

The Finance Act, 2025 introduces substantial amendments to Section 33 of the FE Act, which deals with appeals to the
Commissioner (Appeals).

Under the revised framework:

▪ State-Owned Enterprises (SOEs) are now barred from filing appeals before the Commissioner (Appeals).

▪ For all other aggrieved persons (excluding SOEs), the amendment removes the earlier pecuniary threshold of Rs. 5
million, which had previously determined jurisdiction. Now, such persons can file an appeal before the Commissioner
(Appeals) irrespective of the monetary value involved in FED cases.

▪ A significant procedural shift is introduced by allowing aggrieved persons the option to bypass the Commissioner
(Appeals) and file the appeal directly before the Appellate Tribunal Inland Revenue, thereby offering flexibility in
the choice of appellate forum.

▪ Furthermore, orders passed by the Commissioner (Appeals) will now be appealable before the Appellate Tribunal.
Previously, such orders were required to be challenged directly through a reference to the High Court, limiting the
availability of a two-tier appellate structure.

These changes aim to enhance access to justice for taxpayers, and align the appeal mechanism under the Federal
Excise regime more closely with that of the Sales Tax law.

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APPELLATE TRIBUNAL INLAND REVENUE – APPEALS FRAMEWORK REVISED

[SECTION 34]

The Finance Act, 2025 revamps the appellate regime under Section 34 of the FE Act by removing the earlier pecuniary
threshold of Rs. 5 million, which previously limited appeals to the Appellate Tribunal Inland Revenue (ATIR). Under the
amended framework, any person other than a State-Owned Enterprise (SOE) may now file an appeal before the
Tribunal regardless of the value of duty involved.

The amendment reintroduces a two-tier appeal structure. Aggrieved persons are now allowed the option to either:

▪ File an appeal directly before the Appellate Tribunal, or

▪ First approach the Commissioner (Appeals) and then, if dissatisfied, appeal to the Tribunal against that order.

Specifically, an appeal before the Appellate Tribunal may now be filed in the following cases:

▪ Against an order passed by the Federal Board of Revenue;

▪ Against an order passed by the Commissioner Inland Revenue under Section 35 of the FE Act;

▪ Against an order passed by an Officer of Inland Revenue where Section 33(5) of the FE Act applies (which allows
direct appeal to the Tribunal without first approaching the Commissioner (Appeals));

▪ Against an order of the Commissioner (Appeals).

The appeal must be filed within 30 days of the receipt of the order.

By expanding appellate access and offering procedural flexibility, this change aims to enhance taxpayer rights, improve
access to justice, and streamline dispute resolution under the Federal Excise regime.

EXTENSION OF TIME FOR REFERENCE TO HIGH COURT & BAR ON CERTAIN REFERENCES
[SECTION 34A]

The Finance Act, 2025 brings a significant procedural amendment by extending the time limit for filing a reference
before the High Court against an order of the Appellate Tribunal Inland Revenue from 30 days to 60 days. This provides
aggrieved parties with additional time to prepare and present their case at the judicial forum.

Simultaneously, the amendment bars the filing of references before the High Court against orders passed by the
Commissioner (Appeals). This change aligns with the revised appellate hierarchy, where the appealable forum against
orders of the Commissioner (Appeals) is now the Appellate Tribunal, thus streamlining the process and reinforcing a
two-tier appeal structure before invoking the court’s jurisdiction.

FEDERAL EXCISE DUTY INTRODUCED ON DAY-OLD CHICKS

[FIRST SCHEDULE – TABLE I]

The Finance Act, 2025 has brought “Day-Old Chick (DOC)” within the ambit of excisable goods by amending the Table
I of First Schedule to the FE Act. As per the amendment, FED at a fixed rate of Rs. 10 per chick has now been levied on
day-old chicks.

WITHDRAWAL OF FED ON ALLOTMENT OR TRANSFER OF PROPERTY

[FIRST SCHEDULE – TABLE III]

The Finance Act, 2025 has withdrawn the FED previously applicable on the allotment or transfer of commercial
property, as well as on the first allotment or first transfer of open plots or residential property by any developer or builder.
This withdrawal has been implemented through an amendment made in Table III of the First Schedule to the
FE Act.

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SIGNIFICANT AMENDMENTS
THE ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001 [ICT ORDINANCE]

INTEGRATION OF BUSINESSES FOR REAL-TIME REPORTING BY SERVICE PROVIDERS

[SECTION 3(1)]

The Finance Act, 2025 introduces a provision requiring that, from a date and in a mode and manner to be prescribed
by the FBR through a general order, any service provider listed in Table I and Table II of the Schedule to the ICT
Ordinance must integrate their business systems with the FBR’s computerized system for real-time reporting of service
provision. This measure aligns with FBR’s broader digitalization agenda and aims to enhance service sector
documentation and tax compliance through electronic monitoring.

EXEMPTION ON SERVICES RENDERED TO GERMAN DEVELOPMENT AGENCY, UN AGENCIES, AND PRIVILEGED ENTITIES
[SECTION 3(2A)(D)]

The Finance Act, 2025 grants exemption from sales tax on services rendered to the German Development Agency
(Deutsche Gesellschaft für Internationale Zusammenarbeit – GIZ), various agencies of the United Nations, diplomats,
diplomatic missions, privileged persons, and privileged organizations which are covered under various Acts and, Orders,
rules and regulations made thereunder, and agreements by the Federal Government. This amendment aligns with
Pakistan’s international obligations and affirms its commitment to honoring privileges extended to development and
diplomatic entities.

EMPOWERMENT OF FBR TO NOTIFY NEGATIVE LIST OF EXEMPT SERVICES

[SECTION 3(4)]

The Finance Act, 2025 empowers the FBR to notify a negative list of services that shall be exempt from tax under Table III
of the Schedule to the ICT Ordinance, subject to such conditions, restrictions, and limitations as may be prescribed. The
list will be specified through a notification in the official Gazette.

This amendment introduces flexibility in tax policy formulation and allows the Board to dynamically respond to sectoral
or economic considerations by excluding specified services from the tax net.

FOR FURTHER DETAILS:

ADNAN ALI KHAN
EMAIL: adnan.ali@mavenminds.com.pk
CELL: 0346 222 8774

IMRAN LODHI
EMAIL: imran.lodhi@mavenminds.com.pk
CELL: 0345 821 9801

MURTAZA QUAID
EMAIL: m.quaid@mavenminds.com.pk
CELL: 0331 261 3184

BRIEF ON 2025
FINANCE ACT
SERVICE TAX 35
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