ISLAMABAD, May 21, 2025 – In the upcoming federal budget for 2025-26, the government is preparing to expand the list of luxury items that will be subject to a higher sales tax rate of 25 percent. This move is aimed at generating more revenue and offsetting the expected losses from reduced customs and regulatory duties.
According to reliable sources, the Federal Board of Revenue (FBR) plans to either amend the existing SRO 297(I)/2023 or introduce a new schedule under the Sales Tax Act through the Finance Bill 2026. The changes will broaden the definition of luxury goods by adding more high-end products such as home appliances, expensive tiles, decorative wallpapers, branded wristwatches, and other imported or high-value items.
Currently, under SRO 297(I)/2023, the government has already imposed a 25% sales tax on a wide range of luxury goods. These include aircraft, yachts, jewelry, designer cosmetics, imported food items, high-end mobile phones, fancy décor items, specific vehicles, and cigarettes, among others. The tax was originally raised from 17% to 25% and applied to 33 different categories, covering more than 860 tariff lines.
The new plan suggests that even more luxury items will be taxed at this elevated rate to strengthen the revenue base. The idea is simple: those who can afford luxury should contribute more in taxes. This policy shift also aims to discourage unnecessary imports of non-essential goods and promote domestic production where possible.
The government believes that expanding the list of items under the 25% sales tax bracket will help balance the fiscal deficit. With customs duties, regulatory duties, and Additional Customs Duties (ACDs) being gradually reduced as part of the broader tariff reforms, the higher tax on luxury goods is seen as a way to maintain revenue flow without burdening essential goods or everyday consumers.
Economists and policy analysts suggest that the revised sales tax plan is targeted, since it focuses on consumption by the wealthy rather than the general population. However, some critics warn that the continued expansion of the 25% sales tax could hurt certain industries, especially those reliant on imports for raw materials or semi-luxury items.
In summary, the government is moving ahead with plans to extend the 25% sales tax to more luxury products in the 2025-26 budget. Whether through an amendment to the existing SRO or a new schedule under the law, consumers should be prepared to pay more for high-end goods in the near future.