The Senate Standing Committee on Finance and Revenue, under the chairmanship of Senator Saleem Mandviwalla, held its third consecutive session on Monday to conduct a detailed clause-by-clause review of the Income Tax Ordinance, 2001, as part of the examination of the Finance Bill 2026. The committee deliberated on a broad range of fiscal, taxation, industrial, and revenue-related proposals.
Clause-by-Clause Review of Income Tax Ordinance
The committee undertook an extensive review of the Income Tax Ordinance, 2001, examining key taxation measures, financial reform proposals, and amendments proposed under the Finance Bill 2026. Officials from the Federal Board of Revenue (FBR) briefed members on various provisions and responded to detailed queries regarding tax administration, revenue collection, and implementation mechanisms.
Deliberations on Steel and Manufacturing Sectors
The committee held detailed discussions on matters related to the steel and manufacturing sectors, including proposals concerning taxation mechanisms, refund systems, and industrial facilitation measures. Representatives of the large-scale manufacturing sector apprised the committee of operational challenges faced by the industry, sharing data on electricity costs and sectoral composition. Members reviewed proposals aimed at ensuring a balanced and efficient framework that supports industrial growth while maintaining revenue objectives.
Super Tax and Taxation Reforms
The committee also reviewed proposals related to the super tax and broader taxation reforms. Finance Minister Muhammad Aurangzeb briefed members on the government's ongoing efforts to rationalize the tax structure and support economic activity. During the discussion, members examined proposals regarding exemption thresholds and their potential fiscal implications. The FBR informed the committee that increasing the exemption threshold from Rs500 million to Rs1 billion would have an estimated revenue impact of approximately Rs250 billion.
Emphasis on Evidence-Based Policymaking
Chairman Senator Saleem Mandviwalla emphasized the importance of evidence-based policymaking, institutional continuity, and effective implementation of tax reforms. The committee stressed the need for comprehensive evaluation of taxation measures to ensure consistency, transparency, and long-term sustainability within the fiscal framework.
Allegations of Scandal in Automobile Sector
Senator Faisal Vawda drew attention to what he described as a major scandal involving the automobile sector. He alleged that a case involving Rs1.5 billion had emerged and accused the Engineering Development Board of misusing its powers. Vawda demanded the resignation of the industries secretary and warned that the matter could lead to serious legal consequences. "This is a straightforward case that could result in handcuffs," he said during the meeting.
Digital Monitoring Initiatives by FBR
The committee received a detailed briefing on FBR's digital monitoring initiatives designed to enhance documentation and improve compliance through technology-driven systems. Members were informed that digital monitoring mechanisms are being introduced for industrial units to facilitate transparent oversight and reduce administrative burdens. The committee reviewed proposals associated with the initiative and discussed implementation modalities.
Tax Collection in Steel Sector and Refund Processing
Members also considered proposals relating to tax collection mechanisms in the steel sector, including options linked to electricity consumption data. The committee reviewed measures aimed at broadening the tax base, improving documentation, and facilitating efficient processing of refunds. FBR officials informed the committee that approximately Rs55 billion in refunds are processed on a monthly basis and briefed members on efforts to further streamline the refund system.
Taxation of Life Insurance Policies
In a significant policy development, the committee approved a proposal to tax the profit component of life insurance policies from Tax Year 2026. The principal amount will remain exempt from taxation. Insurance proceeds payable upon death, disability-related insurance benefits, and policies maturing after seven years will continue to enjoy tax exemption under the proposed framework.
Sales Tax Exemptions on Property Settlements
The committee also endorsed the continuation of sales tax exemptions on property settlements following the death of parents. Members were informed that no sales tax would apply on property division or valuation adjustments carried out as part of inheritance settlements.
Taxation of Mutual Funds and Modarabas
The committee further reviewed taxation proposals relating to mutual funds and modarabas as part of broader efforts to ensure uniformity within the taxation framework.
Digital Economy Taxation
During discussions on the digital economy, members reviewed proposals concerning taxation of income generated through social media and online platforms. The committee emphasized the importance of encouraging digital entrepreneurship, facilitating foreign exchange inflows, and ensuring an equitable taxation framework for emerging sectors of the economy. The committee subsequently approved a proposal for a five percent withholding tax on specified categories of social media income. Under the approved proposal, annual income up to Rs600,000 will remain exempt, while a five percent withholding tax will apply to income between Rs600,000 and Rs1.2 million.
Second Session: Auto Sector and Data Integration
Following a brief recess, the committee reconvened and resumed deliberations on the Finance Bill 2026 and related taxation measures. During the second session, the committee heard representations from stakeholders of the auto import and automobile sectors regarding policy implementation, regulatory procedures, and trade facilitation measures. Members were briefed on matters relating to vehicle imports, inspection procedures, and sectoral challenges. Relevant officials informed the committee about ongoing consultations and policy developments aimed at supporting the sector and ensuring regulatory clarity.
Data Integration and Tax Base Expansion
The committee also reviewed matters relating to data integration, documentation of the economy, and expansion of the tax base. The FBR informed members that efforts are underway to enhance coordination with the State Bank of Pakistan to improve the use of financial data for tax compliance purposes. Members were briefed on proposals concerning transaction monitoring and measures intended to strengthen documentation across various segments of the economy. The committee was further informed that data analysis had identified approximately 8,697 individuals with deposits amounting to approximately Rs750 billion who had not contributed income tax, highlighting the importance of expanding the tax net and improving compliance.
