FY27 Budget Cleared With Some Key Changes

The National Assembly on Tuesday passed the Finance Bill 2026-27, giving final approval to the federal budget after making several amendments covering automobile taxation, customs duties, tax administration, and digital compliance.

Among the major changes, customs duties on imported vehicles have been revised under the new tariff regime. Imported vehicles with engine capacities between 2,000cc and 3,000cc will attract an 86 percent duty from July 1, while vehicles above 3,000cc will face a 92 percent duty.

The government has also reduced duties on several smaller imported vehicles. The effective duty on 1,800cc vehicles has been lowered from 156 percent to 74 percent, while vehicles above 1,500cc will now attract 57 percent duty instead of 91 percent. Similarly, the duty on imported vehicles between 1,000cc and 1,500cc has been cut from 76 percent to 52 percent, while the rate for vehicles up to 850cc has been reduced from 66 percent to 42 percent.

Under the approved budget, Special Excise Duty will not apply to vehicles with engine capacities of up to 1,800cc. Meanwhile, imported electric vehicles will be subject to new customs duties, with EVs valued at up to $75,000 attracting a 30 percent duty and those priced above $110,000 facing a 40 percent duty.

The Finance Bill also introduces a concessional 10 percent sales tax on children’s stationery items, including pencils, pens, and sharpeners.

In the Islamabad Capital Territory, a one-time token tax of Rs. 10,000 will apply to vehicles with engine capacities of up to 1,000cc, while pre-2010 vehicles in the same category will be subject to an annual token tax of Rs. 20,000. For vehicles between 1,001cc and 1,300cc, token tax has been fixed at 0.25 percent of the invoice value.

The bill further amends the Income Tax Ordinance by revising provisions relating to tax assessment under Section 182 and introduces stricter enforcement against non-compliant taxpayers.

Penalties for ignoring FBR notices have been significantly increased, with the first violation carrying a fine of Rs. 1 million and repeated violations attracting penalties of up to Rs. 2 million.

The government has also strengthened legal provisions for electronic tax monitoring. Businesses that fail to install mandatory electronic monitoring systems or deliberately tamper with them may face substantial fines and imprisonment of up to five years. To encourage compliance, the FBR will offer rebates of up to Rs. 30 million for installing approved electronic monitoring systems.

Another key reform makes electronic filing mandatory. From July 1, all income tax returns must be submitted through the FBR’s Iris portal, while companies will also be required to file financial statements in machine-readable digital formats.

The approved Finance Bill also introduces an algorithmic settlement mechanism, allowing eligible taxpayers to file revised tax returns without obtaining prior approval from the commissioner. Taxpayers opting for the new mechanism will not be subject to additional penalties or surcharges for filing revised returns under the prescribed conditions.