Direct & Indirect Tax Measures in Finance Bill / Act 2025

Context & scope
Breaking down the Finance Bill (later enacted as Finance Act 2025) and explain the principal direct and indirect tax measures proposed and ultimately passed. The KPMG brief is targeted at tax professionals and business leaders who need to understand the detailed legislative changes and their immediate implementation consequences.

Direct tax (income tax) highlights
KPMG enumerates adjustments to withholding tax schedules, restructured tax brackets for individuals, and targeted disallowances for certain categories of deductions. The Bill also contained provisions on advance tax collection and tightening of the Active Taxpayer List (ATL) linkage to government services, with the explicit goal of incentivizing registration and formalization. For corporations, KPMG notes changes that affect related-party transactions, depreciation/amortization (particularly for intangibles), and treatment of certain allowances; these changes affect taxable income computations and deferred tax treatment under IFRS/IAS in financial statements.

Indirect tax (sales tax & federal excise)
On the sales tax side, the Bill/Act redefines some supplies and clarifies taxation for marketplaces, intermediaries, and delivery agents. For federal excise, the measures tighten excisable good monitoring and broaden the base in some segments (e.g., select consumer goods and energy products). The immediate implication is heightened compliance costs and the need for clearer invoicing/collection processes for businesses operating in consumer-facing and logistics chains.

Targeted measures for specific economic activities
The Finance Bill included provisions aimed at digital platforms (final tax regimes or withholding responsibilities), luxury and convenience sectors, and energy vehicles (levies aimed at new energy adoption). Customs duty changes — both protective tariffs and revenue measures — were also specified to align fiscal and industrial policy. KPMG emphasizes that these targeted measures reflect policy priorities rather than purely revenue logic.

Revenue & policy rationale
KPMG frames these measures as a mixture of revenue mobilization (to meet IMF and fiscal targets), formalization of the digital economy, and the protection/promotion of domestic industry. The government’s simultaneous focus on administrative reforms (digitization, e-monitoring) suggests longer-term ambitions to reduce tax leakage rather than simply to raise short-term revenue.

Operational and accounting impacts
The changes have immediate accounting consequences: altered withholding tax flows affect cash flow timing and working-capital management; changes to expense deductibility impact pretax profit and tax provision calculations; and shifts in excise or customs treatment affect cost of goods sold and inventory valuation. KPMG advises companies to update internal tax calculators, revise transfer pricing documentation, and re-assess tax provisions for financial statements prepared under IFRS or local GAAP.

Compliance risk & enforcement
KPMG warns that compliance risk will rise as tax authorities implement new recovery and audit measures (discussed further in the Amendments Ordinance). Businesses could face increased audit activity, retrospective assessments, or stricter application of withholding rules — hence the emphasis on documentation, contract reviews, and proactive tax governance.

Recommendations
KPMG’s recommended immediate actions are: (1) perform a detailed impact assessment for your sector, (2) update accounting, payroll, and ERP systems to automate new withholding treatments, (3) re-negotiate vendor and customer contracts where tax-gross up clauses are present, and (4) create a compliance road-map to mitigate audit risk.

References:
KPMG. Direct and indirect tax measures in Finance Bill 2025.