Tax

The GST on agriculture sector in Pakistan and its impact are also very significant, shaping nation’s farm scenario. Agriculture is Pakistan’s largest industry, with about 24% of its GDP contributed by agriculture and employing almost half of the total labor force. Given that the sector already benefits from a wide range of protections to aid farmers, it is important for all concerned parties including farmers, suppliers and policymakers to have a better understanding about the GST in agriculture sector of Pakistan. 

This blog discusses the important aspects of GST in agriculture, the taxability of farm equipment and yield of farmers, and recent updates on GST applicable for the agronomic sector. 

 

Key Areas of GST 

The key focus areas in GST for agriculture sector are basically about exemptions and reduced rates to reduce the tax incidence on farming operations. In Pakistan, Federal Sales Tax (GST) is governed by the Sales Tax Act, 1990 Some goods may be exempt required. The standard rate for GST is 18% as of 2025. 

But there are several agriculture-specific exclusions and exemptions: 

Unprocessed Agricultural Produce: 

Generally, all basic food and raw Agri-produce in Pakistan are exempted from sales tax. This applies to fresh fruits and vegetables, grain, and other unprocessed items that come directly from a farmer.  

Key Agri Inputs: 

Fertilizers (DAP on reduced rates) and pesticides continue to be exempted or at lower levels in the past budgets. The government in its budget 2025-26 proposals did not extend GST levy to these essential inputs, which came as a big relief to farmers. 

Seeds and Other Essentials: 

Some agricultural supplies, like poultry feed and some seeds, are exempted from or lightly taxed. 

Farm Machinery and Equipment: 

Concession is accorded to imports and local purchases for some agricultural machinery, except for the normal rate unless otherwise indicated on schedules. 

These focal points of GST in agriculture are designed to mitigate input costs and help spur productivity without loading it with other taxes. 

 

Taxability of Agri-Produce and Farm Equipment 

Agri-Produce 

Uncultured or minimally processed agricultural products are exempted significantly if provided by growers or local suppliers. This waiver would apply to market prepared vegetables with minimal processing. However: 

• The normal GST (18%) is also liable for processed or branded products. 

• Materials sourced through intermediaries or in packaged forms may carry liability for tax. 

The farm gate sales are still allowed, consistent with the policy to protect primary producers. 

Farm Equipment 

Farm equipment, including tractors, harvesters and irrigation equipment are common goods that generally attract sales tax of 18 per cent on import and supply. However: 

• Some categories under the Sixth Schedule or specific notifications are exempted or preferred (especially greenhouses, milking machines, and specialized equipment). 

• Local producers and importers receive favorable treatment in export-processing or other special zones. 

Recent talks have showcased potential justifications, but fundamental farming machinery is taxed at higher rates than inputs, such as fertilizers. 

 

GST Rate Changes for Agriculture Sector 

The GST rate structure changes with respect to agriculture have been temporary despite mounting pressure on the economy. Key recent developments include: 

• Exemption on fertilizers and pesticides in the budget of 2025, refusal to increases (DAP had stayed at stuttered level despite being considered for increase). 

• The standard rate of GST was raised to 18% in general, but exemptions for agriculture related were maintained. 

• No major hikes on the core inputs, though inputs for fertilizer production (like natural gas) would have been under review. 

These changes struck a balance between revenue requirements and sectoral support, without any liability that might push up food prices. 

 

Impact of GST on Agricultural Sector 

Effects of GST on Agriculture mixed but more protective. Exemptions for fresh produce and major inputs have helped to keep prices in check, avoiding inflation in food price while doing its bit for rural livelihoods. 

Positive aspects: 

• Cheaper input costs for fertilizers and pesticides mean higher yields and access. 

• The exemptions ensure that there is no tax cascading, and investment in primary agriculture is promoted. 

Challenges: 

• The tax on machinery is raising the cost of mechanization and becoming an obstacle to modernization by small farmers. 

• Potential future justifications (IMF-encouraged) could end up increasing costs if they decrease the available exemptions. 

Taken together, the current system assists growth, but continued exclusions are essential to sustaining it. 

 

Conclusion 

GST on Agriculture sector in Pakistan is a protective and selective levy system. Although levy on simple farming products is almost nil, the GST is there on processed items and also on equipment for agriculture as well as in some of the inputs. The significance of major aspects of GST in agriculture, updating changes in GST rate for agriculture sector and analyzing the GST on agricultural sector are necessary for sustainable development and locomotion. 

For both farmers as well as agribusinesses, the ability to keep abreast of information allows cost effective production, regulatory conformity and long-term sustainability in one of Pakistan’s key economies. 

The local automobile sector has been a driving force of our economy for decades, generating employment, fostering other related industries, and catering to the transportation needs of millions. But the industry also continues to be affected by taxation, especially GST rates on vehicles. Effects high and ever-increasing GST rates on vehicles in Pakistan have played an important role towards affordability of vehicle, local manufacturing as well as imports patterns in the recent past (specially with the federal budget 2025-26).  

 

Understanding GST Rates on Vehicles 

A sales tax in Pakistan is known as the General Sales Tax (GST) being part of Federal Board of Revenue. Pakistan’s general sales tax rate is 18%. But lower rates are historically offered to the auto sector on certain categories to make them affordable and available for local assembly. 

Small cars (up to 850cc) were charged with a concessional GST of 12.50% in the budget before 2025-26. However, the new budget has merged them with a general rate and increased GST rates on vehicles in Pakistan for small units to 18 percent. This can be especially tough on darling entry levelers like Suzuki’s Alto, that don’t get any cheaper for budget buyers. 

There can also potentially be a higher effective tax rate for bigger cars, hybrids and imports such as customs duty (for imported vehicles)  and more recent taxes like the Climate Support Levy that was introduced in the 2025-26 budget. This duty is clearly targeted at the ICE vehicles and raises their prices both above local made as well as imported cars. 

 

How Much is the GST on Cars? 

As of December 2025: 

Small cars (up to 850cc): 

18% GST against current 12.5%. 

Most other locally manufactured/assembled vehicles: 

18% standard GST rate, potential variance for hybrids (prior to corrective changes, around the lower margin of about 8.5%, but proposals generally being modified back and forth). 

Imported vehicles:

 18% GST on CIF (Cost, Insurance, Freight) value + customs duties and other charges apply. 

These GST rates of vehicles alone can be rated as one of the highest in the region in terms of auto taxation for Pakistan, not to mention adding a burden due to additional environmental and carbon levies. 

 

How to Calculate GST on a Car? 

GST on a car is easy to calculate if you know the tax value: 

• Calculate the base value: For locally built automobiles, this is most commonly the ex-works price. For imports, it is the CIF value and customs duty. 

• Take the GST percentage rate: Now, calculate this: Base value × GST Percentage Rate (18% in most cases). 

• Add more taxes: Factor in federal excise duty (if applicable), income tax withholding and new try-ons like the 1-3% Climate Support Levy on ICE vehicles. 

 

 

Impact of High GST Rates  

Heavy GST imposed on vehicles in Pakistan directly affects the prices of vehicles for end users. The increase in small cars to 18 percent is expected to raise the prices of the Suzuki Alto model by PkR160,000-190,000 per unit. That makes new vehicles increasingly out of reach for middle and lower-income families looking for cheaper options. 

In general, car prices have increased for the following reasons: 

• Reduced rates being aligned with the standard 18%. 

• Environmental tax imposed on fuel-based cars. 

• Perpetual high luxury and large-degree tax (can be as much as 25% on cars priced above certain price brackets). 

As a result, demand for new cars has weakened within more price-sensitive groups, prompting buyers to either shift towards or delay used car purchases. 

 

Effects on Vehicle Imports 

Imports, both Completely Built-up Units (CBUs) and secondhand vehicles, are subjected to multiple taxation. The 18% GST is stacked on customs duties, regulatory duties, and additional customs duties. In the latest budget, a number of regulatory duties had been cut further to promote trade, but the high base of GST and new green levies made this ineffective for traditional vehicles. 

High taxes levy a penalty for the importation of luxury and premium vehicles, continue to fend off local assemblers to some degree. But under IMF-inspired liberalization, used car import restrictions are being relaxed, and this could inundate the market with cheaper alternatives to new cars produced locally. 

Sales have switched to EVs because they have less incentives and low tax compared to ICE high-taxed models. Over time, this could reshape import patterns in favor of greener technology. 

 

Broader Implications for the Auto Sector 

Pakistan’s auto industry has reached a crossroads. High GST rates on vehicles aim to boost government revenue and promote sustainability but risk stifling growth: 

• Decreased sales volumes for regional OEMs (original equipment manufacturers). 

• Thousands of people out of work at assembly plants and in dealership networks. 

• Less rapid take-up of new technology owing to affordability. 

• Sleeping on old, foreign cars instead of forex reserves. 

The positive fallout of these policies is that it pushes people towards EVs and hybrids. These are the ones in line with global trends and reduces the dependence on oil imports. 

 

Conclusion 

The high GST rates affect the price and imports of vehicles in Pakistan’s auto sector tremendously. Currently, consumers will have to pay a higher cost as GST rates for vehicles are largely set at 18%. But the industry is still also dealing with demand downturns and changing dynamics. For buyers and stakeholders, knowing how much GST on cars in Pakistan is and how to calculate GST on car are both equally important. 

As the industry adjusts to these changes, a balanced approach that will cater to both revenue requirements. It encourages affordable and green mobility is critical for sustainable expansion. For new GST rates on vehicles in Pakistan, kindly refer to FBR notifications. 

In the fast-emerging IT industry of Pakistan, exporters influence the economy to a large extent by developing software. They are offering digital solutions and exporting IT enabled services. But the tax world can be difficult to get your head around. It is important for exporters to know about IT and sales tax in order to be compliant, minimize costs and penalties. In this blog, we cover basics such as sales tax on IT in Pakistan, exemptions available for exporters and some practical advice around your calculations. Whether you’re exporting software or offering IT support services online, being informed can help you maximize the benefits of these tax measures. 

 

Overview of Sales Tax on IT 

Sales tax in Pakistan is imposed under the Sales Tax Act, 1990 and on services it is controlled by Provincial Ordinances. The Federal side is controlled by the Federal Board of Revenue (FBR), and provinces operate service-related taxes. The IT and IT enabled service sectors includes software development, data processing and call center operations. The taxation will depend on location of the supply and nature of service. 

In the case of ICT, IT services tax was available at 16% from July 2015 but later it had to be brought down to 5% by making another notification. Provincial rates for services typically fall between 15% and 16%, and the combined standard federal sales tax rate on goods is 18%. Crucially, provision within the domestic market of IT services evidently comes under taxable services.

But the point of interest for exporters is how these provisions are to be interpreted in the event of an international transaction. Exports are dealt with differently to promote foreign exchange earnings and are often eligible for zero-rating or exemptions. 

 

Sales Tax on IT Services 

IT services sales tax-effect in Pakistan is mainly for domestics supplies and on lower side for exports. ICT (Tax on Services) Ordinance 2001 also has given a broad definition of IT/IT enabled services, which is made consistent with the Income Tax Ordinance. The seller in the locality of a buyer that is client must charge sales tax for the province at which his business’s location. You can take an example of 16% in case Punjab represents services associated with IT. 

Exporters have at least some good news that exports of IT services and IT enabled services are zero rated. This is the situation countrywide, except for certain exceptions in provinces like Sindh. Would the exporters on PSEB have an added advantage as most exporters don’t need to get FBR sales tax registration for exports? There are also possibilities that related services such as telecom for software exporters may be spared. 

It may be mentioned here that although exports are zero-rated for sales tax purposes, PSEB-registered companies still are subject to withholding tax at a reduced rate OF 0.25% until the year 2026 on export proceeds which is also a final tax under the Final Tax Regime (FTR). 

 

Sales Tax on IT Equipment 

In terms of hardware sales, Pakistan’s IT equipment is sold by importers and suppliers are charged with the sales tax. The general rate for imported goods is 18%. But certain items like computers and laptops are subject to a separate rate. The FBR has raised sales tax on imported computers and laptops to 10% from 5% with effect from the ongoing fiscal as part of revenue generation measures. That’s true at the import level and for companies like IT firms, that cost can rise. 

Exporters have some potential relief. Inputs that are used to carry out export-oriented activities may be eligible for the suspension or refund of sales taxes. In case of the importation of equipment for generation of exportable IT services, exporters are allowed input tax credits or exemptions.

Exemptions and Benefits for IT Exporters 

There are several incentives for exporters in the IT industry to grow. Key exemptions include: 

• Zero Rating on Exports: No sales tax on IT and IT enabled service exports under SRO 590(I)/2017 of ICT and provincial equivalent. 

• Relief for Income Taxes: Income from exports is not taxed if 80% repatriated but is subject to the minimum tax on turnover. A possible transition to a 100% tax credit system could improve the situation. 

• No Registration Necessary: Pure exporters of software or IT services sometimes avoid sales tax registration requirements. 

• Reduction of withholding tax: 0.25% (for ATL listed IT exporters). 

These are part of Pakistan’s effort to encourage digital exports but keep the rules in mind. Keep records of remittances and transact only through authorized dealers. 

 

Compliance Requirements for IT Exporters 

For Sales Tax on IT, exporters must keep in check: 

• Appropriate sales tax registration (federal, provincial as applicable) 

• Proper invoicing indicating zero-rated export of services 

• Retention of contracts with foreign customers 

• Evidence of foreign currency remittance 

• Filing sales tax returns on time 

Non-compliance could lead to the denial of your zero-rating exemptions and penalties, including an audit. 

 

Conclusion 

For Pakistan IT exporters, the correct application and understanding of sales tax on IT. Potential statues can convert possible liabilities into assets. The system ensures global competitiveness through zero-rated exports and specified exemptions. Keep an eye out for FBR notifications as policies will likely continue to develop recent change. The laptop tax increase are good examples of why vigilance is necessary. By complying and benefiting from advantages, exporters can concentrate on innovation and expansion. If you are an IT exporter, check your current operations to make sure they’re not overpaying.