As of July 1, 2025, several major changes came into effect in Pakistan’s tax landscape, following the Finance Act 2025 and related ordinances. These are aimed at increasing revenue, tightening compliance, and modernizing digital taxation. Below are the notable changes, their impacts, and what taxpayers (individuals and businesses) should be aware of.
Key Changes in the 2025 Tax Regime
- Finance Act 2025 – Direct & Indirect Tax Changes
The Finance Bill 2025, approved by the National Assembly and assented by the President, introduced changes across income tax, sales tax, federal excise, and customs laws effective from July 1, 2025. KPMG - Digital Presence Proceeds Tax (DPPT)
- A new tax law targeting foreign digital service providers (for example, Google, Facebook, etc.) with “significant digital presence” in Pakistan. Orbitax+1
- The DPPT was supposed to impose a 5% withholding tax on gross proceeds from these digital services. ITIF+1
- However, the tax was suspended via SRO 1366(I)/2025 effective July 1, 2025. ITIF
- Tax Laws (Amendment) Ordinance, 2025 – stronger compliance and recovery powers
- Immediate payment / recovery: Under Sections 138 (insertion of subsection 3A) and 140 (insertion of subsection 6A) of the Income Tax Ordinance, a taxpayer must pay tax demands immediately (or within notice period) once a High Court or Supreme Court decision (on an issue giving rise to tax) is issued, even if there is a pending stay or appeal. RSM Global+1
- Recovery from third parties: Authorities will be empowered to recover due taxes from persons holding money on behalf of the taxpayer (like banks or other agents). RSM Global
- Posting of tax officers: Section 175C allows the government to post Inland Revenue Officers (IROs) at business premises for monitoring production, supply, stock, or provision of services. This is intended to increase oversight and prevent evasion. RSM Global+1
- Corporate Sector ChangesPwC Tax Summaries
- Super tax rates for companies earning between Rs 250 million and Rs 500 million have been trimmed by about 0.5%. PwC Tax Summaries
- Disallowances for certain expenditures:
• 50% of expenses related to cash sales above Rs 200,000 will be disallowed. PwC Tax Summaries
• 10% disallowance if purchases are made from suppliers who do not hold a National Tax Number (NTN). PwC Tax Summaries - Useful life of indefinite intangibles reduced: How long intangibles (with indefinite life) are depreciated has been shortened from 25 to 15 years, affecting amortization. PwC Tax Summaries
- Loss set-off rules revised: Business losses cannot be set off against rental income any more. PwC Tax Summaries
- Withholding on profit on debt from banks/financial institutions or government securities increased from 15% to 20%. PwC Tax Summaries
- Income Tax Returns & Cash Withdrawal
- The rate on cash withdrawals has been increased to 0.8% of the withdrawal amount. FBR Downloads
- New Income Tax Return rules are in place under SROs to define due dates, filing requirements, etc.