Islamabad, August 3, 2025 – Pakistan has withdrawn blanket income tax exemptions to individuals and entities through Finance Act, 2025.
In this regard, the Federal Board of Revenue (FBR), the apex tax agency of Pakistan, on Saturday issued Income Tax Circular No. 1 of 2025-26 to explain the major changes introduced through the Finance Act, 2025 to amend the provisions of Income Tax Ordinance, 2001.
According to the FBR, under the earlier system, various institutions such as foundations, societies, boards, trusts, and funds were classified into two tables. Entities listed in Table I were granted complete tax exemption on all types of income, while those in Table II received the same benefit but with specific conditions under Section 100C of the Income Tax Ordinance, 2001.
With the new reform, the FBR has reclassified these tables to remove unconditional or blanket exemptions, unless they are backed by a strong legal or governmental rationale. This step is aimed at ensuring transparency and better tax regulation.
Only two categories of organizations will now retain full exemption:
1. Entities that have sovereign agreements with the Government of Pakistan.
2. Entities established specifically to serve government purposes.
These will now fall under clause (57) of Part I of the Second Schedule of the Ordinance.
All other organizations that function as Non-Profit Organizations (NPOs) have been grouped into a single table under clause (66) of the same schedule. These entities will no longer enjoy blanket exemption, but will qualify for 100% tax credit on income — provided they meet the requirements and limitations listed in Section 100C.
The FBR said the move is aimed at promoting fairness while still supporting genuine charitable and development work under proper regulatory oversight.