Income up to Rs600,000 to remain exempt as Senate finance committee backs taxation framework for digital creators
ISLAMABAD: The Senate Standing Committee on Finance and Revenue has approved a proposal to impose a withholding tax on income earned through social media and online platforms, marking a significant step towards bringing Pakistan’s growing digital economy within the formal tax framework.
The committee, chaired by Saleem Mandviwalla, approved the proposal during its ongoing clause-by-clause review of the Finance Bill 2026 and the Income Tax Ordinance 2001.
Under the approved proposal, annual social media income up to Rs600,000 will remain exempt from withholding tax. A five per cent withholding tax will apply to specified categories of social media income exceeding Rs600,000 and up to Rs1.2 million.
Digital economy brought into tax net
The proposal emerged during discussions on taxation of income generated through digital platforms, including social media channels and other online activities.
Committee members emphasised the need to strike a balance between encouraging digital entrepreneurship and ensuring equitable taxation across all sectors of the economy.
The committee noted that Pakistan’s digital economy has expanded rapidly in recent years, contributing to employment opportunities, foreign exchange earnings and the growth of online content creation.
Finance Bill review continues
The meeting was attended by Federal Finance Minister Muhammad Aurangzeb, Minister of State for Finance Bilal Azhar Kayani, Chairman of the Federal Board of Revenue Rashid Mahmood Langrial, senators, industry representatives and senior government officials.
The committee continued its detailed examination of tax proposals covering a wide range of sectors, including manufacturing, steel, automobiles, insurance, mutual funds and digital services.
During the deliberations, members reviewed broader taxation reforms and discussed measures aimed at improving compliance, expanding documentation and strengthening revenue collection.
Taxation of life insurance profits approved
In another significant development, the committee approved a proposal to tax the profit component of life insurance policies from Tax Year 2026.
However, the principal investment amount will remain exempt. Insurance proceeds paid upon death, disability-related insurance benefits and life insurance policies maturing after seven years will continue to enjoy tax exemptions under the proposed framework.
The committee also endorsed the continuation of tax exemptions on inheritance-related property settlements, ensuring that property divisions and valuation adjustments following the death of parents remain free from sales tax.
Focus on documentation and compliance
Members received detailed briefings on the FBR’s digital monitoring initiatives designed to improve tax compliance through technology-driven systems.
Officials informed the committee that digital monitoring mechanisms are being introduced in industrial sectors to strengthen documentation and reduce administrative burdens.
The committee was also briefed on efforts to improve tax administration through enhanced coordination with the State Bank of Pakistan and greater use of financial data for compliance monitoring.
According to FBR officials, data analysis identified approximately 8,697 individuals holding deposits worth around Rs750 billion who had not paid income tax, underscoring the need to broaden the tax base.
Parliamentary scrutiny to continue
The Senate panel is expected to continue reviewing the Finance Bill 2026 and related taxation proposals in upcoming sessions before the budget is finalised.
The approval of the social media income tax proposal reflects the government’s broader effort to expand the tax net while adapting the fiscal framework to emerging sectors of the economy, including digital content creation and online entrepreneurship.
