ICMA proposes sweeping tax reforms for FY27 budget to broaden revenue base

The Institute of Cost and Management Accountants of Pakistan has submitted a set of tax reform proposals to the Ministry of Finance for consideration in the Federal Budget 2026-27, aimed at broadening the tax base and improving revenue generation.

The proposals, submitted to the Tax Policy Office, are designed to formalize emerging sectors, enhance transparency and create “equitable and sustainable revenue streams,” the institute said.

They are structured across seven segments, including new revenue initiatives, climate and green taxation, and urban and transport measures. The institute said additional proposals covering other areas will be released later.

ICMA said its recommendations are based on analysis of Pakistan’s economic priorities, sectoral challenges and international best practices.

Digital and new revenue measures

Among the key proposals is the introduction of a Digital Services Tax targeting revenues from streaming platforms, gaming, mobile applications and other digital media.

The institute also recommended a regulated framework for online and speculative gaming, with licensed operators subject to a 2% tax on gross revenues, converting unregulated activity into a taxable sector.

To increase corporate contributions, ICMA proposed a levy on advertising and brand promotion spending for companies with turnover above PKR 100 million, using existing invoicing systems to minimize administrative burden.

Other measures include an Additional Residential Property Tax on second homes valued at PKR 20 million and above, while exempting primary residences, and a Financial Transaction Tax on equities, derivatives and digital assets.

The institute also proposed a National Consumer Receipt Lottery to encourage documentation of retail transactions and a windfall gains tax on sectors such as sugar, oil and gas, and fertilizers during periods of elevated global prices.

Climate and green taxation

ICMA recommended several measures to support environmental sustainability and generate green revenue.

These include property tax relief for electric vehicle charging operators, with an 80% reduction for the first five years and 50% for the next five years.

A Landfill Disposal Tax was proposed to discourage waste dumping, along with a Progressive Carbon and Pollution Levy for high-emission industries to fund environmental and public health initiatives.

The institute also proposed a Green Transport Levy of 2% on fuel purchases and high-emission vehicles to support low-carbon mobility, as well as a Carbon Market Levy to formalize carbon trading activities.

Urban and infrastructure-related measures

To improve land use and municipal revenues, ICMA proposed an Annual Vacant Urban Land Tax targeting undeveloped plots, with higher rates for prime locations.

It also recommended a One-Time Betterment Levy on land value gains resulting from public infrastructure projects, ensuring that beneficiaries contribute to development costs.

A distance-based urban road usage fee was proposed to ensure fair contribution from road users, particularly electric vehicles that do not pay fuel taxes.

The institute said the measures aim to improve urban planning, reduce speculative land holding and create stable funding for infrastructure.

Policy context and past influence

ICMA said it has previously influenced national tax policy, noting that several of its recommendations were incorporated into the FY2025-26 federal budget.

These included a withholding tax on high-value pensions, as well as bringing digital content creators such as YouTubers and freelancers into the tax net.

The institute said the latest proposals are intended to support fiscal fairness, improve compliance and strengthen Pakistan’s revenue base as the government prepares its next budget.