FBR Proposes GST Hikes on Clothing, Fertiliser, and Cars for 2025-26

The Federal Board of Revenue (FBR) is poised to impose sweeping tax hikes in the 2025-26 budget, targeting General Sales Tax (GST) increases from 5% to 10% on secondhand clothing, footwear, natural gas for fertiliser plants, phosphoric acid for DAP fertiliser, cinematographic equipment, and stationery items, with significant tax implications for businesses. Our tax law firm urges clients to ensure compliance with Federal Board of Revenue (FBR) rules as these IMF-driven changes loom.

Per The News, the FBR also proposes raising GST on locally assembled cars (up to 850cc) from 12.5% to 15%, with adjustments on hybrid electric vehicles (EVs), other vehicles, jewellery (from 3%), raw pharmaceutical materials, and imported electric transport buses, alongside a 10% DAP fertiliser tax hike. These measures, to be finalized during the IMF mission visit from May 14-22, aim to boost revenue but risk supply chain disruptions, as web context from Profit by Pakistan Today notes potential cost increases in agriculture and automotive sectors.

From a tax law perspective, higher GST rates may erode input tax credits under Section 8B of the Sales Tax Act, 1990, complicating expense deductions under Section 29 of the Income Tax Ordinance for manufacturers and retailers. FBR audits could target non-compliance in jewellery and EV sales, with withholding tax (WHT) at 15% on foreign inputs under Section 6 requiring rigorous reporting. Posts on X reflect business concerns over inflationary pressures, suggesting hidden costs.

Critically, the narrative of “revenue enhancement” may mask IMF overreach—web sources highlight farmer resistance to fertiliser tax hikes, and X sentiment questions the fairness of taxing essentials, potentially sparking legal challenges or policy delays. Clients must prepare for compliance shifts.

Our firm advises clients to review GST filings, ensure WHT compliance, and brace for FBR audits, navigating this tax-heavy budget.