A Brief on Finance Act 2025
Pakistan’s Finance Act 2025 became law on 29 June 2025, effective from 1 July 2025. Key changes include amendments in the Income Tax Ordinance, Sales Tax Act, Federal Excise Act, Customs Act and others.
Kamran Butt
10/6/20253 min read
Overview & purpose
The Finance Act 2025 is Pakistan’s primary fiscal instrument that implements tax law changes for the 2025 fiscal year. It was approved by the National Assembly and assented to by the President, with most provisions effective from 1 July 2025. The Act amends multiple statutes — most notably the Income Tax Ordinance 2001, Sales Tax Act 1990, Federal Excise Act 2005, and the Customs Act 1969 — as part of a policy package aimed at modernizing tax administration, broadening the tax base, and increasing revenue collection to assist fiscal consolidation.
Key income-tax changes
The Act adjusts individual and corporate tax provisions with both revenue-raising and compliance goals. Notable changes include revisions to withholding tax rates and mechanisms, reworking of certain allowances and expense deductibility rules, adjustments to tax slabs and surcharge treatment for high earners, and special provisions addressing digital transactions and the digital economy. These measures aim to capture previously untaxed economic activity (especially digital/platform transactions), tighten tax leakage points, and enhance the tax base. KPMG highlights that some of these changes constitute important policy shifts that will affect payroll processing, vendor payments, and corporate tax planning.
Digital economy and platform taxation
One of the most significant policy priorities of Finance Act 2025 is the formal inclusion of the digital economy. The legislation includes new or clarified measures for taxing digital supplies, online marketplaces, and intermediary platforms — including final tax regimes or withholding regimes on certain digital transactions. The approach reflects a global trend of adapting domestic tax laws to cross-border digital commerce but tailored to Pakistan’s enforcement and administrative realities. Businesses operating online or through marketplaces will face greater registration, collection, and withholding responsibilities under the new rules.
Indirect taxes — sales tax & excise
Sales tax and federal excise measures were revised to both close loopholes and improve collection. The Act introduces clarifications on taxable supplies, possible changes in zero-rating treatments or exemptions, and tightened compliance for sectors such as energy, telecoms, and digital services. The Federal Excise Act amendments further strengthen monitoring and anti-evasion mechanisms (for example, tracking/marking requirements for certain dutiable goods), aligning excise administration with modern customs and logistics practices.
Customs and trade measures
Customs provisions were adjusted — partly to raise revenue and partly to protect local industry. Revisions in tariff headings, anti-dumping and safeguard measures, and customs valuation clarifications will impact importers, exporters, and supply chain costs. The government’s stated objective is to use customs policy both as a revenue instrument and as an industrial policy lever, controlling certain imports to boost domestic manufacturing where necessary.
Compliance, enforcement & administration
The Finance Act dovetails with broader administrative measures (including a related Amendments Ordinance discussed in other KPMG publications) that strengthen FBR powers — e.g., audit and recovery processes, documentation demands, and expanded monitoring capabilities. The combined policy thrust indicates the government is prioritizing collection efficiency, digitization of processes (to reduce manual discretion), and the prosecution of evasion. KPMG suggests firms should expect more frequent scrutiny and stricter documentation requirements.
Sectoral implications
Certain sectors are specifically affected: digital platforms (marketplaces, e-commerce), logistics and courier services (new withholding/collection responsibilities), financial institutions (changes to withholding and reporting), and manufacturing (altered treatment for certain inputs and excise). Multinational groups must coordinate cross-border tax planning with local compliance to avoid surprise exposures.
Practical business actions
KPMG recommends that businesses immediately:
Review contractual terms and payment arrangements to identify new withholding or registration triggers.
Update payroll and tax withholding systems to reflect revised slabs and rates.
Ensure digital suppliers and platforms are correctly classified for tax purposes.
Strengthen record-keeping and tax-data systems (including ATL registration and e-filing readiness). These steps are essential to avoid penalties and manage cash-flow impacts from new withholding regimes.
Outlook
The Finance Act 2025 marks a continuation of Pakistan’s effort to modernize tax policy while increasing revenue mobilization in a fiscally constrained environment. For businesses the message is clear: adapt systems, reassess contracts, and engage proactively with advisers to manage new obligations. KPMG’s detailed briefing provides a sector-by-sector readout and practical checklists for affected entities.
References:
KPMG Pakistan. A Brief on Finance Act 2025.
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