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Major Tax Overhaul Introduced
The Federal Board of Revenue (FBR) has introduced sweeping changes to the income tax system, including faceless audits and assessments, algorithm-based settlement of tax disputes, greater digital monitoring of banking transactions, and new taxes on some life insurance and social media income . The changes were introduced through the Finance Act 2026 and amendments to the Income Tax Ordinance, 2001.
Faceless Tax System and Algorithmic Settlements
The FBR will be able to establish a National Faceless Centre to conduct audits, assessments, and quality control. Under the new system, separate officers will handle auditing, assessment, and quality control, with communication between tax officials and taxpayers taking place electronically. The identity of the tax officer handling the case will remain confidential .
The reforms also introduce an algorithmic settlement mechanism for resolving tax disputes, where the system may generate a settlement offer based on factors including the stage of proceedings, the taxpayer’s previous compliance record, and the nature of any discrepancy. A taxpayer will have 10 days to accept the offer through the FBR’s IRIS system .
Digital Monitoring of Banking Transactions
The reforms introduce a new mechanism for monitoring banking transactions and comparing financial data with tax records. Banks and electronic financial institutions will be required to electronically upload information on account holders whose deposits or withdrawals exceed Rs100 million during a reporting period to a central data hub, where it will be compared algorithmically with tax and banking data.
New Tax on Social Media Income and Life Insurance
A 5% withholding tax has been imposed on income earned through social media platforms. Banks and non-bank financial institutions will deduct the tax when crediting or receiving such income into the account of the recipient. For a resident taxpayer, the levy will be treated as minimum tax, while for a non-resident it will be treated as final tax .
The Finance Act has also introduced a final tax on certain payments received under life insurance policies and family takaful certificates. A 15% tax will apply where payment is made within one year, while payments after one year but before four years will be taxed at 10% .
Relief for Salaried Taxpayers
The government has reduced tax rates for salaried individuals, with income up to Rs600,000 taxed at zero percent. Rates range from 1% to 35% for higher income brackets. The 9% surcharge previously imposed on salaried individuals with taxable income above Rs10 million has also been removed.
Property and International Card Taxes
Advance tax on international credit, debit, and prepaid cards has been reduced from 5% to 0.5%. Advance tax on property sales has been set at 2.75% of gross consideration, while purchases will be taxed at 1.25% of fair market value.
Super Tax and Export Incentives
The super tax has been abolished for most taxpayers with income up to Rs500 million. Banking companies with income exceeding Rs150 million will continue to pay super tax at 10%. A reduced tax rate of 0.25% on exports of IT and IT-enabled services has been extended until 2029.
