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PM orders review of high tax rates | The Express Tribune
Prime Minister Shehbaz Sharif. Photo: File
ISLAMABAD:
Prime Minister Shehbaz Sharif has instructed a review of the possibility of reducing higher rates of income and sales tax to stop capital and human flight, as despite putting the maximum burden, the government suffered a Rs276 billion revenue shortfall in the first four months.
In what appears to be a highly ambitious plan, which is still in its infancy and will undergo multiple rounds of scrutiny, the government can inject Rs1.1 trillion into the economy and households by slashing the unaffordable rates of corporate, individual and salaried class income tax and sales tax.
Government sources said that the Federal Board of Revenue (FBR) was preparing different models to bring taxes down to regional levels, so companies stay back in Pakistan and individuals too are not overtaxed.
The FBR’s initial working suggested a reduction in corporate income tax from 29% to 25%, the maximum individual rate from 45% to 25%, abolishing 10% super tax, ending 15% inter-corporate dividend tax and cutting sales tax from 18% to 15%.
Sources said that the estimated annual revenue impact of the move could be Rs1.1 trillion, with the maximum impact of over Rs600 billion on account of reducing the standard sales tax rate.
However, it is highly unlikely that the International Monetary Fund (IMF) may endorse such a plan, which will leave the government with the option of rolling out the plan after the end of the bailout package, according to the sources.
The IMF too appears concerned about the multinational companies leaving Pakistan, which is contrary to the IMF’s goal of attracting foreign investment by ensuring an internationally competitive environment. Individuals are also looking for overseas jobs.
Sources said that taxes have reached such a suffocating level that on the one hand the companies end up paying about 60% of net income in taxes and on the other hand they are forced to pay advance income tax to the FBR to help it achieve targets.
The situation was the worst in the case of salaried class. According to the FBR, the “withholding tax collection from salaries registered the highest increase of Rs214.2 billion (55% growth) in the last fiscal year, primarily due to a decrease in the number of income tax slabs and an increase in the corresponding tax rates in each slab”.
As a result, the salaried class paid a record Rs605.6 billion in the last fiscal year, the second highest after contract payments. Ironically, in contract payments, there are also salaried class-related payments.
Revenue performance
The FBR’s statistics showed that against the target of Rs4.1 trillion, the four-month (Jul-Oct) collection reached Rs3.833 trillion, widening the shortfall to Rs276 billion. It came despite the imposition of new taxes in the budget, the increase in tax rates and some enforcement measures. The Jul-Oct collection was only Rs396 billion, or 11.5%, more than the last fiscal year.
Tax authorities said that revenues suffered badly because of a slowing economy and the situation was further complicated by curtailing the local gas production for the sake of consuming surplus imported LNG. They said that the carbon levy on furnace oil also impacted its use, which in turn affected the sales tax collection.
After the FBR sustained a Rs197 billion shortfall in the first quarter, the IMF during the recent review talks agreed to cut the annual target of Rs14.13 trillion by the same amount. However, the FBR has not adjusted the monthly targets.
The government has assured the IMF that it was ready to take contingency measures to the tune of Rs200 billion annually in January, if the first-half collection remained below the target or expenditures exceeded the agreed limit.
The FBR collected Rs1.8 trillion worth of income tax in four months, missing the target by Rs103 billion. However, the collection was 11.5%, or Rs185 billion, higher than last year.
Sales tax collection amounted to Rs1.36 trillion, falling behind the target by Rs182 billion. It was still Rs123 billion higher than last year.
Federal excise duty collection stood at Rs259 billion, slightly lower than the four-month target. Customs duty collection reached Rs419 billion, which was Rs12 billion more than the target due to increased imports.
Tax authorities said that due to the duty reduction in budget, many items slipped to a zero levy, which led to a 42% increase in their imports. Pakistan is also facing the dumping of foreign goods, which is harming local manufacturing.
PM Sharif on October 25 established a working group on customs, trade, tariffs and dumping, which will be headed by a leading businessman. The working group has held its first meeting this week and will present its findings to the government.
The FBR missed the monthly tax collection target by Rs71 billion as it got Rs950 billion in October. The growth in monthly collection was only 8%, which was near the nominal GDP growth.
Tax returns
The FBR on Friday did not further extend the date for filing annual tax returns after the PM stopped it from giving blanket extension in the filing deadline. However, the taxpayers facing genuine hardships may approach their respective field formations through the FBR’s IRIS system for an extension in filing returns.
The FBR recorded a significant increase in income tax return filings for tax year 2025, marking a new milestone in voluntary compliance and taxpayer awareness, it claimed.
As of October 31, 2025, a total of 5.9 million tax returns had been filed, compared to five million returns in the same period of last year, showing an increase of 17.6%.
However, compared to tax year 2024, the number of income tax return filers decreased by 24.3% or 1.9 million. In the last tax year, 7.8 million individuals and companies had filed returns. The filing will continue in the coming months as the inactive taxpayer status attracts penalties.
The taxpayers paid Rs130 billion along with the returns, which were almost at the last year’s level.
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Budget 2026: FM Nirmala Sitharaman gives a strong push to manufacturing, infrastructure and job creation, while proposing a simpler tax and customs system.
Finance Minister Nirmala Sitharaman presents the Union Budget 2026-27.
Budget 2026 Takeaways: Finance Minister Nirmala Sitharaman on Sunday presented the Union Budget 2026-27, giving a strong push to manufacturing, infrastructure and job creation, proposing a simpler tax and customs regime, and hailing the government’s modernisation drive as a “reforms express”.
The Budget 2026 is anchored around three ‘kartavyas’ — driving growth by enhancing productivity and competitiveness, building people’s capacity, and ensuring inclusive development under the vision of Sabka Saath, Sabka Vikaas.
In her ninth consecutive Budget in Parliament, Sitharaman laid out a multi-pronged strategy to sustain growth amid global uncertainty, including expanding domestic electronics and semiconductor capabilities, de-risking infrastructure projects, skilling India’s youth for emerging technologies, and easing compliance for taxpayers and importers.
Here are the key takeaways from Budget 2026 across manufacturing, infrastructure, skills, AI, taxation and customs duty.
Manufacturing Gets A Boost
Budget 2026 put a special emphasis on the manufacturing landscape in India. The outlay for electronics components manufacturing was raised sharply to Rs 40,000 crore, while new schemes for rare earth magnets, chemical parks, container manufacturing and capital goods seek to reduce import dependency, and strengthen domestic supply chains. Textiles got an integrated, employment-oriented package covering fibres, clusters, skilling and sustainability.
Infrastructure-Led Growth
Infrastructure got a boost with a higher capex allocation and initiatives like a risk guarantee fund to de-risk projects for private developers, new dedicated freight corridors and national waterways, dedicated REITs (real estate investment trusts) for recycling of significant real estate assets of central public sector enterprises (CPSEs), and a seaplane VGF (viability gap funding) scheme.
The Centre’s capital expenditure (capex) target has been increased to Rs 12.2 lakh crore for FY27, up from Rs 11.2 lakh crore earmarked for the current financial year. Moreover, maintaining the fiscal discipline, Sitharaman said the government expects the fiscal deficit to be at 4.3 per cent of the GDP in 2026-27, lower than 4.4 per cent projected for the current financial year.
Tier-II and Tier-III cities were placed at the centre of urban growth via City Economic Regions, backed by reform-linked funding.
“We shall continue to focus on developing infrastructure in cities with over 5 lakh population (Tier II and Tier III), which have expanded to become growth centres,” Sitharaman said in her Budget Speech.
Greater Emphasis On Skilling
The Budget placed renewed emphasis on the services economy as a jobs engine. A high-powered Education-to-Employment and Enterprise Committee will realign skilling with market needs, including the impact of emerging technologies.
Content creation and creative industries get a boost through AVGC labs in schools and colleges, support for animation, gaming and comics, and new institutional capacity for design and hospitality. Tourism-linked skilling, from guides to digital heritage documentation, signals a clear intent to convert culture and content into employment and exports.
“I propose to support the Indian Institute of Creative Technologies, Mumbai in setting up AVGC Content Creator Labs in 15,000 secondary schools and 500 colleges,” FM Sitharaman said. AVGC stands for animation, visual effects, gaming and comics.
AI & Semiconductors Push
Artificial intelligence (AI) was positioned as a cross-sector force multiplier rather than a standalone theme. The Budget provided a push to artificial intelligence (AI) by promoting adoption with governance, agriculture, education and skilling, including proposals for AI-enabled advisory tools for farmers and AI integration in education curricula.
On hardware, the semiconductor strategy expanded decisively under ISM 2.0 (India Semiconductor Mission 2.0), with focus on domestic equipment manufacturing, materials, research centres and workforce development, signalling a long-term commitment to building a resilient chip ecosystem in India.
Taxation, ITR, TDS, TCS
A major structural reform comes with the Income Tax Act, 2025, effective April 1, 2026, containing simpler rules and redesigned forms.
Budget 2026 provided compliance relief for individuals, including extended timelines for revising returns to March 31 from December 31 earlier, staggered ITR due dates, and easier filing of Form 15G/15H through depositories.
Individuals with ITR-1 and ITR-2 returns will continue to file till July 31, and non-audit business cases or trusts are proposed to be allowed time till August 31, according to the Budget Speech 2026-27.
“I propose to extend time available for revising returns from 31st December to up to 31st March with the payment of a nominal fee. I also propose to stagger the timeline for filing of tax returns. Individuals with ITR 1 and ITR 2 returns will continue to file till 31st July and non-audit business cases or trusts are proposed to be allowed time till 31st August,” Sitharaman said.
TDS (Tax deducted at source) rules were clarified for manpower services, while a rule-based system for lower or nil TDS certificates is proposed. TCS rates were cut to 2% for overseas tour packages, education and medical expenses under liberalised remittance scheme (LRS). Litigation is targeted through integrated assessment and penalty orders, lower pre-deposit requirements, and wider immunity provisions.
TDS on the sale of immovable property by a non-resident will be deducted and deposited through resident buyer’s PAN (Permanent Account Number)-based challan instead of requiring TAN (Tax Deduction and Collection Account Number), Sitharaman said.
Customs Duty Tweaks
Customs duty rationalisation continued with a clear focus on domestic manufacturing, energy transition and ease of living. Exemptions have been extended or introduced for capital goods used in lithium-ion batteries, critical minerals processing, nuclear power projects and aircraft manufacturing.
Personal imports will become cheaper with a reduction in duty on goods for personal use from 20% to 10%. Seventeen cancer drugs and additional rare-disease treatments were exempted from customs duty. Process reforms aimed at trust-based, tech-driven clearances, faster cargo movement and lower compliance costs, especially for exporters and MSMEs (micro, small, medium and enterprises).
STT On F&O Hiked
The Budget increased securities transaction tax (STT) on futures trading from 0.02% to 0.05% and on options trading from 0.10% to 0.15%, a move that upset the capital markets with the BSE Sensex crashing more than 2,300 points from the day’s high and the NSE Nifty dropping to 24,571.75.
Securities Transaction Tax (STT) is a direct tax imposed on the buying and selling of securities in India.
Commenting on the Budget, Prime Minister Narendra Modi said, “The Union Budget reflects the aspirations of 140 crore Indians. It strengthens the reform journey and charts a clear roadmap for Viksit Bharat.”
February 01, 2026, 14:43 IST
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Shanghai (China): The Consulate General of India in Shanghai welcomed the resumption of Air India’s direct flight services between Shanghai and New Delhi, marking a major step forward in restoring people-to-people, business and institutional connectivity between India and China.
According to an official release, the inaugural Shanghai-New Delhi flight departed today from Shanghai Pudong International Airport, carrying over 230 passengers on board the Boeing 787 aircraft. The relaunch comes after a gap of nearly six years and represents a significant milestone in normalising bilateral air connectivity following the suspension of services in early 2020.
Speaking on the occasion, Consul General Pratik Mathur said, “The resumption of direct flights between Shanghai and New Delhi is a tangible expression of the renewed momentum in India-China engagement. Enhanced air connectivity is essential for facilitating trade, tourism, academic exchanges and people-to-people contacts, particularly between India and East China. We are pleased to see Air India restoring this important link.”
As per a release, Air India will operate the route four times a week using its Boeing 787-8 Dreamliner aircraft, featuring modernised cabins and enhanced onboard services. The restored service reflects the growing demand for travel between the two countries and the steady recovery of cross-border mobility. It will also support commercial, educational and cultural exchanges between India and the Yangtze River Delta region, one of China’s most economically dynamic clusters.
The Consulate General of India in Shanghai remains committed to supporting initiatives that strengthen connectivity and deepen cooperation across trade, investment, tourism, education and cultural exchange, the release stated.
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