Pharma sector likely to get major tax relief in Budget 2026–27

ISLAMABAD – The federal government is expected to introduce significant tax relief measures for the pharmaceutical sector in the upcoming Budget 2026–27, aimed at reducing costs and improving investment conditions in the industry. The official sources said that the authorities are likely to abolish the 3% value-added tax (VAT) currently imposed on imported finished pharmaceutical and diagnostic products under the Twelfth Schedule. The move is expected to ease the overall tax burden in a price-regulated sector where the effective charge had risen to nearly 4%, despite the intended 1% final tax framework under the Eighth Schedule. However, the existing sales tax exemption under Entry No. 166 of the Sixth Schedule is expected to remain unchanged and will continue to apply only to charitable hospitals, without expansion to other public or private healthcare institutions. Industry data shows that listed pharmaceutical companies recorded strong financial results in 2025, with profits increasing by 78% year-on-year to Rs42.2 billion, driven by higher sales volumes, reduced input costs, and lower financing expenses. Despite improved profitability, the sector’s tax burden remained largely unchanged, with an effective tax rate of 39.9% compared to 40.3% in the previous year. Total tax payments stood at Rs27.9 billion, while in the fourth quarter alone the effective rate reached 40.9%, with tax expenses of Rs9.8 billion. Sources said the pharmaceutical industry holds significant potential not only in domestic healthcare delivery but also as a high-value export sector, provided it receives consistent and growth-oriented policy support. However, stakeholders argue that the current tax structure continues to discourage reinvestment, expansion, and export competitiveness. Tax experts have recommended introducing performance-based tax credits for export-oriented pharmaceutical companies, particularly those showing steady annual growth. Under proposed models, firms achieving 5