Yearly Archives: 2025

Textile industry is the backbone of Pakistan economy which constitutes more than 60% to total exports and providing jobs directly or indirectly millions of people. Export-oriented units (EOUs) must sell cheaply in the world market or face disaster. We’ve learned that one of the most impactful domestic forces on their cost structure and cash flow is Sales Tax Regulations. 

In this blog, we will walk you through the existing Sales Tax Rules, decode sales tax basics as applicable to exporters, analyze major sections of the FBR Sales Tax Act and cover important updates made under the Sales Tax Regulations 2025 that textile exporters should not miss.  

 

Sales Tax Basics 

In essence, Sales Tax is a Value Added Tax (VAT) that is imposed under the Sales Tax Act, 1990 by the Federal Board of Revenue (FBR). The standard rate is 17%, however the textile export sector benefits from a special zero-rating regime, once under the Fifth Schedule and now predominantly under the Export-Oriented Sectors (Zero-Rating) Rules as inserted by SRO 209(I)/2024 and amended from time to time. 

In simple terms: 

• Supplies to registered exporters local (spinning to ready fabric) are fully zero rated. 

• Exporters claim zero-rating on their exports under Section 5 to read with Fifth Schedule, or the new EOU system. 

• Refund of input tax paid on purchase of raw material, utilities and machinery etc. 

 

Sales Tax Regulations 2025 

The most significant change in the recent Sales Tax Regulations of Pakistan has occurred through Finance Act 2024, coupled with several SROs towards the end of 2024 and at the beginning of 2025. The concessional zero rating on local supplies of five export sectors (textile, leather, carpets, surgical and sports goods) under SRO 1125(I)/2011 was withdrawn with effect from 1st July 2024. 

Instead, the government initiated a fresh scheme, Export Facilitation Scheme 2025, and a faster refund regime, known as FASTER-Plus, while also introducing special Sales Tax Rules for units registered under Export-Oriented Units. 

Some of the salient features relating to Sales Tax Regulations for 2025 for textile EOU are: 

Mandatory EOU Registration 

All export-based zero-rated entities should now be registered in the Export Facilitation Scheme 2021 (updated till 2025) of the FBR and concerned Export Development Authorities. 

17% Sales Tax on Local Supplies 

Local supplies to EOUs are now being charged 17% sales tax as opposed to being zero-rated. But input tax is fully recoverable/ refundable via FASTER-Plus system within 72 hours (in most cases). 

Deferral of Payment of Sales Tax on Imports 

EOUs would be allowed to import raw material and machinery under DTRE (Duty and Tax Remission for Exports) or the new EFS without payment of sales tax on the condition that bank guarantees/pay-orders are provided. 

Consumption-Based Minimum Tax 

EOUs must pay a minimum value-addition tax of 2–3% on export proceeds if their input tax adjustment is overly excessive to output (a measure to curb fake/flying invoices). 

 

Impact on Textile Exporters 

Positive Impacts 

• The average refund time has been cut down to just under a week, compared with 6‒9 months prior to FASTER-Plus which led to quicker refunds. 
• This makes it easier to manage the operating capital through deferred payment on imports. 
• Sincere exporters with appropriate documents are getting recovery of their inputs in almost real-time. 

Negative Impacts and Challenges 

• Cash Flow Crunch: Regardless of whether refunds are rapid, the imposition of 17% up front on local purchases ties up billions in working capital for large mills. 

• Heavier Compliance Load: EOU registration, e-invoicing, and monthly consumption ratios need strong ERP. 

• Vulnerability of audit and penalties in case input output ratios are raised by the FBR’s AI-based risk engine. 

• Small and medium exporters that do not have robust finance teams are finding the change challenging. 

 

What Textile Export-Oriented Units Should Do? 

• You should register under Export Facilitation Scheme 2025 (EOU) at the earliest. 

• Connect your ERP with FBR’s Digital Invoice Portal. 

• Keep proper records of production and consumption activity to prevent little value-addition tax. 

• Annex-H Monthly without fail (including nil) to remain eligible for FASTER-Plus. 

• If you are a commercial exporter, or Tier-2/3 manufacturer, you may want to have a look at participating in an indirect export scheme. 

Conclusion 

Even as the government targets to clamp misuse of zero-rating regime and broaden the tax base, real textile export-oriented units are now under higher compliance costs and temporary liquidity stress. Anyone who does not quickly adapt to the digital and EOU world will come under increasing pressure of competition. 

Never has it been more important for Pakistan’s textile industry to be up to date with FBR Sales Tax Act changes, notices and circulars. 

Construction has emerged as a growth-oriented industry in Pakistan with its impact extending beyond providing framework for infrastructure, house demand and job creation. Even as we face 2025, it is key for stakeholders to have insights into the tax regime and, more specifically, with respect to GST rates applicable on property developers. Pakistan’s General Sales Tax (GST) or commonly known as sales tax on services, is the major guiding factor to control transactions in this domain. This blog discusses the complexities of GST on real estate in 2025, GST rates on construction services and other charges such as income tax on construction services in Pakistan and the service tax rate in Pakistan. Whether you’re a developer, investor or homeowner, these insights will enable you to plan constructively around changing fiscal policy. 

 

Overview of GST in Pakistan’s Construction Sector 

Pakistan’s Goods and Services Tax (GST) regime, administered by Federal Board of Revenue (FBR) and provincial authorities, covers supply of goods and services including in construction and real estate sector. The Pakistani system is a federal goods sales tax at 18% percent and provincial goods sales tax (GST) on services that has varied rates from 15-16%. For the construction industry, the GST focuses more on services such as land development, building construction, and property promotion. 

In 2025, most provinces (Islamabad, Sindh, Balochistan, Khyber Pakhtunkhwa) have a services tax rate of 15%, but Punjab will have a services tax rate of 16%. This rate is for construction services, and reduced rates or exemptions are applicable in case of essential activity or export purposes. The federal 2025-26 budget has incentivized the industry by providing certain incentives, such as lower withholding tax on property transactions, to spur the real estate sector and at the same time expand the tax net.” 

 

GST on Real Estate in 2025 

Real estate GST in 2025 is still focusing on transparency and affordability with no significant changes reported recently in the budgeting. Real Estate deals including plot sales, construction buildings and transfers of developed properties are liable to service tax on the service component. Imported construction materials are taxed under the federal sales tax system at an 18% rate, while local services are charged by the provincial GST. 

For real estate developers, the GST is imposed on development and marketing services that are typically subject to lower rates for housing promotion. In Islamabad Capital Territory, property developers are taxed on ‘services’ according to their land area and type of construction, with differing rates for affordable projects. The 2025 budget eliminated the Federal Excise Duty (FED) on real estate activities, which is likely to have a positive impact on developers’ costs and ultimately end-user pricing. 

Here’s a brief lowdown on whether the new system applies to real estate. 

Transaction Type	GST Rate (2025)	Notes
Land development services (plots)	15% (provincial)	Based on sq. yards; reduced for affordable housing
Building construction services	15-16%	Excludes land value; 18% on imported materials
Property promotion/sale services	Specific rates (e.g., Rs. 10-35 per sq. ft. for builders)	Varies by province and project size
Real estate transfers (resale)	0% (if completed)	No GST on ready-to-move properties

 

GST Rates on Construction Services 

GST on construction services is a provincial subject matter. Construction activities including civil work, subcontract and finish also come under the purview of provincial GST at the standard services tax rate of 15-16 percent in Pakistan. 

By 2025, The FBR has made compliance easier for contractors by making digital invoicing compulsory for all registered concerns. In the case of work-like contracts, he covers both labor and materials supplied through the contractor. There are discounted rates (e.g., 5% on health-related construction), but regular projects receive the full rate. 

Service Type	GST Rate (2025)	Province Variation
General construction (civil works)	15%	16% in Punjab
Sub-contracting (e.g., earthwork)	15%	Exemptions for govt. projects
Finishing services (painting, etc.)	15-16%	18% if materials imported
Affordable housing construction	Reduced (5-10%)	Incentives in budget 2025-26

 

Income Tax on Construction Services  

As GST applies to indirect taxes, in Pakistan income tax on construction services focuses on direct incomes, resulting in double compliance. For 2025-26, builders and developers have gone for a presumptive tax regime under Section 100D of the Income Tax Ordinance wherein gross receipts are taxed and not net income to keep it simple. 

Under this regime: 

• Construction and building sales: 10% of gross receipts 

• Development and sale of plots: 15% of developed plots sold. 

• Aggregate activities: 12% of gross receipts 

This subsequent final tax discharge is a project-by-project measure where advance payments are necessary at plan approval (5% of estimated liability). For non-opted entities, there are progressive slabs up to 35% and a minimum tax of 1% on turnover. 

There’s another layer of withholding taxes: 6% on contracts (12% for non-filers) and up to 4% in property sales. These rates were lowered in the 2025 budget (from, for example, 3% to 1.5% on mid-value properties), providing developers with needed cash flow relief. 

 

Construction Sector Guidance by CBM Consultants  

CBM Consultants supports developers and builders with GST by advising on appropriate tax classification, calculating the tax for construction work, preparing compliant invoices, and handling provincial sales tax registration. We also deal with GST return filing that means to maintain accurate project costing and documentation, for not paying penalties on time compliance. Guided by our professionals, developers can maximize tax planning, ensure they’re not unwittingly breaking any laws and keep cash flow problems to a minimum, all across different types of projects. 

 

Challenges and Opportunities  

Challenges fronting constructions, inflation and cost of materials, competition aggravated with 18% GST on imports. However, there are opportunities in 2025 with lower stamp duties for Islamabad (from 3% to 1%) and CGT simplifications (15% for filers on post-July 2024 acquisitions). Digital offerings from FBR such as the builder tax calculator help with compliance. 

On inputs, property developers can go as high as getting 15% back if they plan their GST early through registered suppliers and correct invoicing. Affordable segments have fewer effective prices for the homebuyer, resulting in increased market size. 

 

Conclusion 

Pakistan’s construction sector aims to contribute 7-8% to the GDP by 2025, learning GST rates on property developers and related taxes is a must. With 15–16% GST on Real Estate (services component) by the year 2025 and presumptive relief in income tax on construction services in Pakistan, it balances revenue considerations with incentives. Developers ought to take advantage of provincial differences in the service tax rate in Pakistan and check FBR’s websites for latest info. 

In Pakistan the word GST for smaller companies is a little confusing because many businessmen, tend to confuse it with the old provincial Sales Tax on Services as well as with the federal Goods and Service Tax (GST) on goods. GST on goods is administered by FBR as of 2025 while sales tax on services is collected by provincial revenue authorities (PRA, SRB, KPRA, BRA, AJK) assumes that this will also be handled regionally. But most SMEs must contend with both regimes, and the compliance burden is real. 

This ultimate guide breaks down what GST means for small businesses in Pakistan, the advantages it offers, how to register, how to file and some of the day-to-day practical issues the SME faces. 

 

What is GST in Pakistan? 

GST (Goods and Services Tax) is a federal sales tax that applies to the supply of goods in all Pakistan, including imports into such area, but excludes exports therefrom. GST is a value-added tax and is reduced at all ITCs of inputs to produce the product even though it lengthens the supply chain. 

Services are taxed at the Provincial Sales Tax level (which most often is referred to as GST). Rates vary: 

Sindh and Balochistan – 13 to 15% (based on the services) 

Punjab and Khyber Pakhtunkhwa – 16% 

AJK – 16% 

 

Who Needs Sales Tax Registration in Pakistan? 

You must register if: 

• Your annual sales of goods show PKR 100,000,000 or more (FBR GST) compulsory. 

• You have an annual taxable services turnover above the provincial thresholds (in general PKR 30 to 50 million depending on the province), obligatory. 

• You are operating in some sectors (perhaps restaurants, beauty salons, freight forwarders etc.) even below the threshold, compulsory. 

• You are opting for input tax credit, and you want to be included in the Active Taxpayer’s List (ATL). 

 

How to Register for GST? 

Registration of GST in Pakistan is a structured and digitalized process explained on the FBR portal. 

Step-by-Step Guide: 

Register in the FBR IRIS portal. 

Apply GST Registration for company or proprietorship. 

Submit documents that may be needed (ID Card, business bank account statement, rental agreement or ownership document). 

Upload biometric verification (if required). 

Once it is verified, you will download your GST certificate FBR from the IRIS profile. 

Upon registration, you can also learn how to check GST number in Pakistan online through FBR GST taxpayer portal or IRIS dashboard. 

 

Opportunities for Small Businesses Under the GST System 

Enhanced Credibility and Market Access 

It is through proper Sales Tax Registration that small businesses are included as documented economy. This is increasing brand value and enabling SMEs to join the larger corporate clients that demand a GST-compliant vendor. 

Input Tax Adjustments 

Registered SMEs may charge input tax credit on the purchases, which will markedly decrease their total business cost. This allows for competitive price points while still achieving profitable margins. 

Access to Government Tenders 

A huge number of government tenders require GST registered firms to undertake the projects. A valid GST certificate for FBR opens doors to new projects, partnerships, and opportunities. 

The Emergence of E-Commerce and Online Trading 

With the increasing popularity of online marketplaces, most platforms now mandate that sellers should have a GST registration. This is why GST for small business online is a proactive move for SMEs seeking broader audiences locally and internationally.  

 

Compliance Challenges Faced by SMEs 

With its advantages, the GST structure also comes with small business problems related to effective compliance: 

Scarcity of Knowledge about GST Rules and Percentages 

Knowing how to apply for registration with GST, the format and rates of invoice are some of the daunting challenges a new business often faces. Misunderstandings and misinterpretations result in notices, penalties, and exposure to audits. 

Complex Documentation and Records 

SMEs would have to keep comprehensive records of sales and purchases, tax invoices as well as reconciliation statements for reconciled against monthly GST returns. 

Frequent Changes in Regulations 

As changes are made to the GST rules by FBR, it is important for businesses to be informed. It’s tough for SMEs to do this without professional accounting help. 

Timely Filing of GST Returns 

The filing of GST needs intricate details and time-bound applications. Small businesses frequently find themselves at a loss regarding appropriate financial management and the right employees. 

 

Why SMEs Must Prioritize GST Compliance? 

For many small businesses, GST compliance becomes the foundation for: 

• Transparent financial reporting 

• Enhanced cash flow resulting from the claims for deletion of input tax 

• Higher probability of winning corporate business 

• Better access to e-commerce platforms 

• Consistently secure and protect your business for tomorrow’s growth 

Small and medium businesses not focusing on GST compliance are at risk of losing business opportunities and may be penalized by FBR as well. 

 

Practical Tips to Survive GST as a Small Business 

• Use an online accounting system which has FBR integrated. 

• Issue tax invoices properly (serial number, buyer NTN/CNIC mandatory above PKR 50,000). 

• File returns on time even if nil. 

• Keep digital records for at least 6 years. 

• You can retain a part-time tax practitioner. 

 

Conclusion 

GST for Small Businesses is not just about tax compliance, it’s a business strategy to enable SMEs in their growth journey, formalize businesses and become an integral part of Pakistan’s evolving economy. With basic knowledge of GST, lawful registration and responsible filing will reveal a treasure trove for small businesses in the form of new lucrative opportunities by adequately addressing the compliance hurdle.