ISLAMABAD, April 27, 2026 – Pakistan is considering scrapping concessional income tax rates on a wide range of imported goods as part of efforts to raise revenues in the federal budget for 2026-27, according to officials in the finance ministry.
The proposal focuses on revising the Twelfth Schedule of the Income Tax Ordinance, 2001, which outlines reduced withholding tax rates applied at the import stage. The officials said the tax policy office has reviewed the framework, particularly Part I of the schedule, which currently allows a concessional income tax rate of 1% on certain imports.
Authorities are weighing two options: either abolish the 1% concessional rate entirely or double it, a move that could significantly enhance tax collection amid persistent fiscal pressures. A final decision has yet to be made.
Pakistan’s tax authority, the Federal Board of Revenue (FBR), collects income tax on imports under Section 148 of the ordinance. The applicable rates vary depending on the classification of goods within the Twelfth Schedule.
Under the existing structure, imports listed in Part I are subject to a 1% tax on the import value, inclusive of customs duty, sales tax and federal excise duty. Goods in Part II attract a 2% rate, rising to 3.5% for commercial importers. Meanwhile, Part III items face higher rates of 5.5% and 6% for commercial importers.
Officials said Part I covers a broad range of goods, including food items, machinery and precious metals such as gold. However, they noted that essential commodities—particularly food—are likely to retain some level of concession even if broader exemptions are withdrawn.
If the concessional regime under Part I is removed, the items may be redistributed into other parts of the schedule, according to the officials.
The proposed changes come as Pakistan seeks to widen its tax base and meet revenue targets tied to ongoing economic reforms, while balancing concerns over inflation and the cost of essential imports.