Budget 2026: Pakistan slashes Foreign Card Tax from 5% to 0.5%

ISLAMABAD – Pakistan rolled out sweeping tax reform package that blends relief with tighter enforcement. At the center of the announcement is a sharp cut in the foreign card transaction tax, from 5% down to just 0.5%, offering immediate relief to consumers making international payments for everything from online subscriptions to travel bookings. The federal government unveiled broad package of tax reforms aimed at easing pressure on consumers and businesses while strengthening enforcement and expanding the tax base. A key relief measure is the sharp reduction in advance tax on foreign transactions made through debit and credit cards, lowered from 5% to 0.5%. The move is expected to reduce costs for individuals making international payments, including online subscriptions, e-commerce purchases, and travel bookings. Capital Value Tax (CVT) has been abolished entirely, removing a levy that had faced sustained criticism from investors and taxpayers. For small retailers, a simplified fixed tax regime has been introduced. Businesses with annual turnover of up to Rs. 200 million will now be taxed at 1% of sales under the new structure. While withholding tax adjustments will be allowed, a minimum payment of Rs. 25,000 will remain mandatory at the time of annual filing. The sales tax framework for Fast-Moving Consumer Goods (FMCG) has also been revised, with products shifted to the Third Schedule. Under the new mechanism, sales tax will be calculated on the basis of Maximum Retail Price (MRP), potentially altering pricing and compliance dynamics across the sector. To improve documentation, the government has introduced a requirement for individuals and Associations of Persons (AOPs) purchasing from unregistered suppliers to withhold and deposit 5% of the transaction value. The measure is intended to discourage the undocumented economy and broaden the tax net. In a significant administrative reform, authorities have established a National Faceless Assessment Centre. The syste