Here Are the Salient Features of Budget 2026-27

The federal government has announced the budget for the fiscal year 2026-27.

Finance Minister Muhammad Aurangzeb presented the Federal Budget in the Parliament House today for the fiscal year 2026-27.

• The total federal budget outlay is Rs 18.8 trillion.
• The government has announced a fixed tax “Asaan Scheme” for retailers with annual sales up to Rs200 million, under which eligible retailers will either pay a minimum tax of Rs. 25,000 per year or 1% of sales, whichever is applicable. The move is aimed at simplifying tax compliance for small and mid-sized retail businesses while expanding the tax net.
• The government has linked penalties for non-compliance with digital integration requirements to inflation, meaning penalties will adjust upward over time instead of remaining fixed.
• The federal government has proposed a fixed tax system for small retailers and shopkeepers under Section 99B of the Income Tax Ordinance. The new system will apply to small shopkeepers with annual sales of less than Rs. 10 million. They will pay 0.5 percent of annual sales as tax.
• The budget also introduces a Federal Excise Duty (FED) of Rs. 80 per litre on petroleum-based solvents such as white spirit and naphtha, with officials stating that these products are often blended with fuel for consumption, creating loopholes in the system.
• To curb tax avoidance practices, a new tax has been proposed on sham or misuse-based life insurance policies, targeting schemes designed to exploit regulatory arbitrage rather than genuine insurance coverage.
• The budget further proposes FED on high-value imports, including vehicles above 2000cc engine capacity and electric vehicles valued above Rs. 20 million, signaling tighter taxation on luxury imports.

Some relief measures have also been introduced, including the removal of import duties on Active Pharmaceutical Ingredients (APIs) used in critical disease treatments such as cancer, aimed at reducing healthcare costs.

• For the tobacco and vaping sector, the government has increased FED on e-liquids for electronic cigarettes to Rs16,500 per kg, up from Rs10,000 per kg, while also removing the previously applied high retail price-based tariff of up to 65%.
• In the digital economy, the government has introduced withholding tax on income from social media platforms such as YouTube, Instagram, and TikTok, with banks assigned to deduct the tax at source.
• The minimum tax rate for distributors and wholesalers has been increased from 0.25% to 0.5%, further tightening the taxation framework for supply chain businesses.

The overall package as a mix of compliance tightening, luxury taxation, and targeted relief measures under the FY2026–27 budget framework.

Here’s the full list of salient features

• Strategic tariff rationalization under the National Tariff Policy (NTP) 2025–30
• Simplification of procedures, trade facilitation, and improved system efficiency
• Targeted public health relief and economic support for key sectors

*Strategic Tariff Rationalization

Reduction of Customs Duty (CD) from 20% to 15% and 10%, and from 15% and 10% to 10% and 5%, and from 5% to 0% for input goods across various industrial sectors (92 tariff lines)

*Reduction in Additional Customs Duty (ACD)

• Reduction from 6% to 4% on 449 tariff lines
• Reduction from 4% to 2% on 2,107 tariff lines
• Elimination from 2% to 0% on 569 tariff lines

*Review of Regulatory Duty (RD) Regime

• RD above 20% reduced and capped at 20% (359 tariff lines)
• 20% reduction across RD rates between 2.5% and 20% (1,347 tariff lines)
• RD rates of 2.5%, 2%, and 1% reduced by 20% or eliminated (208 tariff lines)

*Review of Exemption Regime 5th Schedule

• Deletion of entries where concessionary CD equals or exceeds general tariff
• Exemption of CD on cancer-related Active Pharmaceutical Ingredients (APIs)
• Reduction of CD from 20% to 10% on specialized construction vehicles
• Exemption of CD on defence imports

*Other Measures

• Exemption of CD, ACD, and RD on agricultural machinery imports
• Exemption of CD on bulletproof vehicles for SCO summit and counterterrorism operations by federal and provincial governments
• Creation of 15 new PCT codes; amendment of 2 codes for trade facilitation
• Definition of state warehouses authorized by Customs Collectors for legal clarity
• Clarification of misdeclaration thresholds based on revenue amount instead of number of GDs
• Legal cover for cargo scanning under Customs Act
  Authorization to rationalize penalties and prescribe appeal mechanisms through rules
• Authorization for Collectors to reduce penalties
• Authorization for Customs to conduct auctions through designated persons
• Increase in penalty for terminal operators from Rs. 500,000 to Rs. 10 million for non-compliance with detention certificates
• New penalty for unauthorized removal or misappropriation of goods from warehouses
• Expanded definition of “removal” to include movement, concealment, or possession of smuggled goods
• Mandatory handover of seized goods to Customs authorities
• Introduction of faceless adjudication system
• Empowerment of Special Judges to freeze assets in illegal fund transfer cases
• Establishment of independent case scrutiny committees
• Service of summons allowed via newspaper publication if accused is untraceable

*Exemption of sales tax on magazines

• Extension of exemption on import of CKD kits for electric vehicles until 30-06-2027
• Expanded exemption for aircraft parts imported or leased by PIACL
• Withdrawal of exemption on family planning devices
• Abolition of tampon tax
• Exemption for strategic shipping investments
• Exemption for SCO summit and counterterrorism imports
• Exemption on capital goods for refinery upgradation
• Addition of new entries in Sixth Schedule
• Extension of EV exemption sunset until 30-06-2027

*Expansion of Third Schedule for tax collection at manufacturing stage

• Withholding tax on toll manufacturers for unregistered buyers
• Expansion of withholding tax scope for AOPs and individuals
• Imposition of 3% VAT on sale of imported raw materials in same condition
• Penalty rationalization and addition of three new offences under Section 33

More Measures

• Introduction of definitions: advance receipt invoice, algorithmic settlement, e-invoicing, national faceless centre, production monitoring system
• Definition of Tier-1 retailer expanded (turnover threshold: Rs. 200 million+)
• Clarification of delivery timing of goods
• Authority granted to Board for outsourcing valuation functions
• Tax on steel sector linked to electricity consumption
• Adjustment limits for input tax revised under Section 8B
• Electronic debit/credit note adjustments under Section 9
• Faceless audit under new Section 11H
• Anti-fake invoice measures strengthened (Section 21 substitution)
• Invoice issuance expanded to exempt supplies
• Audit powers extended to Chartered and Cost Accountants
• Introduction of faceless jurisdiction (Section 30AA)
  Establishment of Directorate General (Field Compliance)
• Creation of National Faceless Centre (Section 32C)
• Production monitoring and video analytics system strengthened
• Seizure powers for non-tax stamped goods expanded
  Auction framework for confiscated goods introduced
• Faceless appeal system (Section 45C)
• Algorithmic settlement mechanism (Section 47AA)
• Independent case scrutiny committee (Section 47AAA)
• Centralized directory maintenance provisions
• Restrictions on sale of imported same-condition goods
• Reduction in tax rates for salaried individuals; revised slabs and higher threshold (Rs. 7 million for top rate of 35%)
• Abolition of tax on deemed income from immovable property (Section 7E removed)
• Rationalization of super tax; abolished up to Rs. 500 million income, reduced to 8% above threshold (excluding banking, ENP, fertilizer sectors)
• Reduction in advance tax on property transactions; revised flat rates (2.75% and 1.5%)
• Reduction of export withholding/advance tax to 1.25%
• Extension of IT/ITeS export tax rate (0.25%) until Tax Year 2029
• Reduction in foreign card transaction tax from 5% to 0.5%
• Adjustability of e-commerce tax for larger businesses
• 10% tax credit for FBR digital integration investment
• Withdrawal of advance tax on foreign TV plays and ads
• Income tax exemption for specified welfare and charitable organizations
• Exemption for asset-backed securitization SPVs
• Removal of Capital Value Tax on foreign assets of residents
• Increase in exemption threshold for small traders (Rs. 200 million)
• Annual exemption certificate facility for eligible entities
• Clarification on inheritance and family settlement valuation rules
• Tax on misuse of life insurance policies
• Withholding tax on social media and digital content earnings
• Revised withholding tax regime for services and professionals
• Increase in minimum tax for distributors/wholesalers to 0.5%
• Banking data integration for tax mismatch detection
• Mandatory electronic integration for businesses
• Enhanced penalty regime for non-compliance
• Withdrawal of capital gains relief for non-ATL persons
• Establishment of National Faceless Centre for audits and appeals
• Introduction of Algorithmic Settlement Mechanism
• Independent case scrutiny for litigation control
• Improved ADR framework
• Revised taxation framework for non-resident shipping income
• Expanded NCCPL role in capital gains computation
• Mandatory machine-readable financial statements
• Expanded audit powers for specialists
• Strengthened disclosure and compliance systems
• Establishment of Directorate General (Field Compliance)
• Expansion of special procedures for small traders
• Technical and administrative amendments for clarity
• Reduction in FED on foreign travel
• Reduction in FED on acetate tow (Rs. 44,000 to Rs. 10,000)
• Exemption of WHO-standard sports/electrolyte beverages
• Exemption for SCO summit and counterterrorism imports
• Extension of EV CKD exemption until 30-06-2027
• Increase in FED on e-liquids for electronic cigarettes
• Introduction of FED on naphtha, solvent oil, and turpentine
• FED on luxury EVs and luxury vehicles
• FED on base oils and lubricants
• New tariff table for luxury imported vehicles
• Introduction of faceless audit and electronic invoicing definitions
• New Section 7A for faceless audit system
• Electronic invoicing provisions updated
• Strengthened penalties for non-compliance
• Seizure powers for counterfeit goods expanded
• Independent case scrutiny committee established
• Electronic tracking of excisable goods
• Empowerment for specialized audits
• VAT-mode implementation for selected petroleum products

Here’s the full budget in brief