The government announced on Tuesday a reduction in taxes on the import of used cars and the removal of the age limit, but failed to secure International Monetary Fund (IMF) approval for exempting sales tax on children's pencils and exercise books. This contrast highlights the nation's priorities, as stated during a briefing to the Senate Standing Committee on Finance.
Used Car Import Policy Changes
Secretary Commerce Jawad Paul informed the committee that, as part of commitments with the IMF, the restriction limiting imports to vehicles up to five years old will be lifted starting July, provided environmental standards are met. Additionally, the additional regulatory duty will be reduced from 40% to 30% by next month. These changes are being implemented in a phased manner under IMF conditions aimed at providing equal opportunities for foreign nationals to sell their used cars in Pakistan.
The meeting was chaired by Pakistan Peoples Party (PPP) Senator Saleem Mandviwalla. Meanwhile, the National Assembly Standing Committee on Finance, chaired by PPP's Syed Naveed Qamar, began reviewing the Finance Bill. Unlike the Senate Committee, which has no binding authority on the budget, the National Assembly Committee can accept or reject budget proposals.
IMF Rejects Education Tax Exemptions
Director General of the Tax Policy Office, Dr. Najeeb Memon, stated that the IMF has opposed any tax exemptions for the education sector. "The IMF has rejected tax exemptions for promoting education in Pakistan and did not agree to keep stationary goods exempt from sales tax," Memon said, adding that tax exemptions cannot be granted for all necessities of life.
In the last budget, the government imposed an 18% sales tax on pencils, color pencils, geometry boxes, pencil sharpeners, exercise books, glues, and adhesives sold at retail for student use. This has significantly increased prices, despite Prime Minister Shehbaz Sharif declaring an education emergency in Pakistan. The Finance Bill 2026-27 leaves these essential items unaddressed, even as other socially sensitive products like contraceptives and sanitary pads have been exempted from all taxes and duties.
No Tax Concessions for Beverages or Exports
Finance Minister Muhammad Aurangzeb, who attended both committee meetings, ruled out tax concessions for the beverages sector. He rejected a proposal to cut federal excise duty by 5% on beverages in exchange for enhancing revenues by Rs8 billion over this year's collection. The proposal was submitted by Dr. Faisal Hashmi on behalf of the beverage industry.
The finance minister also refused further tax reductions on exports, stating that the government has already provided significant relaxations, including a reduction in advance income tax, the end of super tax on exports, and interest rates of only 4.5% for exporters. PTI Senator Mohsin Aziz argued that the government should have increased the fixed income tax rate for exporters instead of bringing them under the normal regime. He warned that exports might decline further in the next fiscal year due to policies that remain unfavorable for business.
National Tariff Policy
Secretary Commerce Jawad Paul informed the Senate committee that under the five-year national tariff policy, the simple average tariffs are targeted to reduce to 13% from July. However, he noted that tariffs would likely be 13.77%, still above the target due to less reduction last year and adjustments for industry pain points. Last year, tariffs were cut to 16.56%.
For the next fiscal year, major changes have been made in the regulatory duty structure. Except for alcohol, where the duty remains at 90%, all other duties have been reduced to 20%. The federal cabinet decided to keep the duty rate for alcohol unchanged, despite the import of alcoholic beverages being banned in Pakistan. The total revenue impact of duty reductions in the second year of tariff reforms is estimated at Rs143.4 billion for the next fiscal year.
National Assembly Committee Proceedings
The National Assembly Standing Committee on Finance approved new powers for a special judge to freeze the properties and assets of an accused person under trial, whether held in their name or by others, under the Customs Act. If a special judge finds reasonable grounds to believe that an accused has committed illegal fund transfers into or out of Pakistan, they may order the freezing of the accused's assets, including those held by others on their behalf.
FBR officials informed the committee that the Anti Money Laundering Authority recommended inserting an explicit provision declaring void any action that prejudices the legal power to freeze property liable to confiscation. This covers transfers, arrangements, or dealings intended to defeat future confiscation of properties and assets. "NAB also has similar powers," said Hamid Ateeq Sarwar, member strategic transformation of the FBR. However, MNA Sharmila Faruqi remarked, "NAB's law is a black law," and recommended adding safeguards to protect third parties holding assets of accused persons as payables.
The standing committee also approved ending the requirement for debit or credit cards for small traders benefiting from the government's new fixed scheme. The FBR aimed to bring 100,000 large traders into the tax net, but only 37,000 have been registered so far, Sarwar admitted. He noted that ending the card machine requirement might exclude over 500 traders already considered large, but assured the committee he would provide exact figures at the next hearing.
The NA standing committee refused to grant the FBR authority to exclude any class of traders from the large trader category. Syed Naveed Qamar urged the FBR to address reasons causing confusion about trader status rather than seeking powers that could be misused.
The committee also deferred a vote on a controversial proposal to charge Rs30 per unit of electricity sales tax from steel melters and re-roller mills, as divisions persist within the sector on whether the new tax should be applied.
