In a major policy shift aimed at promoting export-led economic growth, the Government of Pakistan has announced the first phase of the National Tariff Policy 2025-30, which will be implemented in the upcoming Federal Budget 2025-26. This comprehensive reform plan aims to lower import duties, eliminate additional and regulatory duties, and simplify the customs tariff structure over the next five years.

The Engineering Development Board (EDB), in a circular dated May 17, 2025, confirmed that the policy will gradually restructure the tariff regime to support industrial competitiveness and economic expansion.

Key Features of the National Tariff Policy 2025-30:

As per the EDB circular, the policy outlines the following major reforms:

1. Reduction in Customs Duty Slabs
   The current five customs duty slabs—0%, 3%, 11%, 16%, and 20%—will be reduced to four slabs:

   • 0%

   • 5%

   • 10%

   • 15%
     This includes:

   • Abolishing the 3% slab, shifting items to 0% or 5%

   • Reducing the 11% slab to 10%

   • Lowering the 16% slab to 15%

   • Phasing out the 20% slab entirely over the five-year period

2. Capping Maximum Customs Duty at 15%
   The highest rate of customs duty will be capped at 15%, down from the current 20%, by the end of the plan.

3. Phased Elimination of Duties

   • Additional Customs Duty (ACD) will be completely eliminated in four years, starting with Budget 2025-26

   • Regulatory Duty (RD) will be phased out over five years

4. Abolishment of the Fifth Schedule
   The Fifth Schedule of the Customs Act, which governs the concessional import of capital goods and industrial raw materials, will also be phased out over five years. This is a significant move towards a more neutral and competitive tariff regime.

Economic and Industrial Impact

The policy is part of the government’s export-oriented growth strategy, as directed by Prime Minister Shehbaz Sharif, who termed the announcement a “turning point” in Pakistan’s trade and industrial policy.

“This is a crucial step in driving economic growth through a smarter, more equitable trade policy,” said the Prime Minister during a high-level meeting on the National Tariff Policy.

The EDB has called upon industrial stakeholders to analyze and respond to the plan, emphasizing the need for sector-wise input to assess the implications for local industries, import costs, export competitiveness, and economic productivity.

Stakeholder Consultation

The EDB’s circular invites all industry associations, manufacturers, and trade bodies to submit their feedback on how the proposed tariff restructuring might affect:

• Industrial input costs

• Product pricing and supply chains

• Export margins and competitiveness

• Import substitution and local production

This consultative approach aims to ensure that the policy reforms are aligned with the economic needs of various sectors while fostering sustainable growth.

In a significant judgment that reinforces procedural transparency in tax administration, the Appellate Tribunal Inland Revenue (ATIR) has ruled that an income tax assessment order must be communicated to the taxpayer within the legally prescribed timeframe to attain legal efficacy.

The Tribunal emphasized that an order merely signed or finalized internally on a file does not fulfill the legal requirement unless it is formally communicated to the affected party. Without such communication, the order cannot be considered validly passed within the statutory deadline.

This important ruling was issued by the ATIR in a case argued by noted tax lawyer Waheed Shahzad Butt, where the tribunal held that procedural fairness is paramount and legal deadlines must be strictly adhered to.

“This judgment is a reaffirmation that tax authorities are duty-bound to operate within the legal framework and uphold the rights of taxpayers,” Butt stated. “It sets a precedent that decisions must be made and shared transparently and within the stipulated period.”

Key Observations from the ATIR Order:

• A show cause notice (SCN) was issued on January 8, 2024, and the amended assessment order was passed on November 8, 2024 — totaling 305 days from issuance.

• The Income Tax Ordinance, 2001, under Section 122(5A), permits a maximum of 240 days for passing an assessment order following a show cause notice.

• It was admitted in the case that the extension in time was sought from the Commissioner only after 239 days, on September 3, 2024, which the Tribunal found procedurally defective.

• Crucially, no opportunity of hearing was given to the taxpayer before granting the extension, which is a mandatory requirement under law.

As per the Tribunal’s findings:

“It is now a settled principle that before granting any extension of time, it is the bounden duty of the Commissioner Inland Revenue (CIR) to act impartially and provide a fair hearing to all concerned parties. The failure to do so renders the extension order illegal and void ab-initio.”

Legal Implications:

This decision highlights the importance of procedural compliance by tax authorities. It underscores that:

• Taxpayers must be kept informed of orders affecting their rights;

• Extensions for assessments must follow due process, including providing the affected party an opportunity to be heard;

• Orders passed outside the statutory period, without proper communication, are liable to be declared time-barred and unenforceable.

The Federal Board of Revenue (FBR) is expected to broaden the scope of sales tax on services within the Islamabad Capital Territory (ICT) in the upcoming federal budget for the fiscal year 2025-26.

Sources indicate that one of the major changes under consideration includes the introduction of a 4% sales tax on ride-hailing services (cab aggregators) operating in the federal capital. This measure is aligned with FBR’s ongoing efforts to bring digital and service-based platforms into the formal tax net.

Currently, provincial revenue authorities such as PRA, SRB, and KPRA are charging a 5% sales tax on ride-hailing services in their respective jurisdictions. The proposed 4% tax by FBR would align Islamabad’s treatment of such services with those prevailing in the provinces, while providing a slight competitive advantage in rate.

FBR is already levying 15% sales tax under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 on a broad array of services, including:

• Hotels, motels, guest houses, farmhouses

• Marriage halls, lawns, clubs, and caterers

• Information technology (IT) and IT-enabled services

• Other professional, business, and support services

The proposed tax on ride-hailing services is likely to be part of a broader initiative to enhance revenue collection from the rapidly growing digital economy. In addition, the FBR is also reviewing changes to the withholding tax regime, particularly focused on increasing withholding tax rates on e-commerce platforms.

These proposals are expected to be finalized and announced in the federal budget for 2025-26, aimed at improving documentation, increasing tax compliance, and expanding the tax base in the service sector, especially within the ICT region.

PRAL to Provide Free Digital Invoicing Integration Services Ahead of FBR’s New E-Invoicing Mandate

Lahore, Pakistan – In a recent awareness session organized by the All Pakistan Textile Mills Association (APTMA), Pakistan Revenue Automation Limited (PRAL) reaffirmed its commitment to offering free-of-cost digital invoicing integration services to taxpayers. The session was attended by APTMA members and led by senior officials from PRAL and FBR.

Abid Naeem, General Manager of PRAL, announced that integration with the FBR’s digital invoicing system will be mandatory for all taxpayers starting June 1, 2025, for the corporate sector, and July 1, 2025, for non-corporate entities. He emphasized that PRAL is ready to assist all taxpayers in achieving seamless compliance with the new mandate—at no additional cost.

Asad Shafi, Chairman APTMA North, welcomed the PRAL team and praised the initiative, noting that the awareness session was vital in educating taxpayers on the upcoming transition. He referred to Rule 150Q of the Sales Tax Rules, 2006, which mandates electronic integration of systems used for invoice generation and transmission through licensed integrators. Asad highlighted that PRAL has officially been notified as a Licensed Integrator under Rule 150XF to facilitate this compliance process.

He added that PRAL’s decision to organize training and awareness seminars across the country will play a critical role in helping taxpayers understand and prepare for the new invoicing system. He expressed hope that such sessions will not only clarify compliance requirements but also demonstrate how digital invoicing can transform financial operations, enhance transparency, and improve efficiency.

Speaking at the session, Abid Naeem underscored the importance of embracing technological innovation in business operations. He explained that PRAL is offering end-to-end support for integration, including structured implementation, technical assistance, and ongoing compliance support. The goal is to simplify the process for businesses and help them avoid penalties by ensuring full compliance with regulatory requirements.

He further noted that with the introduction of SRO 69(I)/2025 by the Federal Board of Revenue (FBR), Pakistan’s financial and tax systems are undergoing a major digital transformation. Businesses must adapt to electronic invoicing to remain compliant and maintain transparency in their operations. The seminars conducted by PRAL aim to reduce resistance to change by offering practical steps, demonstrations, and answers to common concerns raised by taxpayers.

Abid reiterated PRAL’s long-standing role in promoting digital innovation in Pakistan’s tax ecosystem. The organization is enabling businesses to smoothly integrate electronic invoicing with their existing ERP systems and workflows. These awareness sessions also address common challenges and misconceptions around FBR-compliant e-invoicing, ultimately helping participants understand the benefits of automation, real-time data visibility, and streamlined financial reporting