18% sales tax on vehicles up to 850cc proposed

Imported chocolates, coffee, cereal bars, and pet food to cost more due to higher taxes

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ISLAMABAD:

The government has proposed tax hikes in the Finance Bill 2025–26, increasing duties on the production, import, and sale of a wide range of items — a move market watchers fear will only fuel further inflation.

According to budgetary proposals, the government will impose an 18 per cent sales tax on vehicles up to 850cc and imported solar panels, which had previously enjoyed various exemptions.

A 0.25% withholding tax will apply to electronic products under the digital invoicing system, while a 2% withholding tax is likely to be levied on clothing purchases.

Electronic media equipment such as amplifiers and projectors will also be subject to the 18% sales tax. Freight and consignment bills — including those used for the transportation of food items within the country — will now incur the same tax rate.

Retail-packaged imported chocolates, coffee, cereal bars, and pet food for cats and dogs will also see price increases due to higher taxes. Moreover, e-commerce transactions have been brought under the tax net, making all forms of online shopping more expensive.

Read more: Non-filers to be barred from purchasing vehicles, immovable property

The government has also proposed an 18% sales tax on e-commerce, under which courier services, banks, and payment gateways will act as withholding agents, collecting the tax at the time of delivery and depositing it with the Federal Board of Revenue (FBR).

Digital platforms such as TikTok, YouTube, Instagram, Facebook, and Twitter, as well as freelancers and digital content creators, will be required to submit detailed advertising revenue data to the FBR on a quarterly basis. Platforms that fail to comply may face regulatory action, including the blocking of overseas remittances via the State Bank of Pakistan.

Despite the tax burden on consumers, the government has offered relief in certain sectors. Import duties have been reduced on items such as vegetables, fruits, live animals, meat, lentils, varnish, and polish, which may lead to lower prices in these categories.

Moreover, the steel and iron sectors are expected to benefit from a reduction in duties, potentially lowering construction costs. The government has also proposed cuts in taxes on real estate transactions, which experts believe could stimulate activity in the property market.