In a major step toward tax reform, the International Monetary Fund (IMF) has acknowledged that all four of Pakistan’s provincial governments are collaborating to introduce a harmonized property taxation framework, set to roll out in the 2025-26 fiscal year. This new system will shift property valuation from the traditional rent-based model to a capital valuation approach, aiming to modernize and broaden the tax base.

According to the IMF’s latest report, the provinces have also amended their Agriculture Income Tax (AIT) regimes in a move hailed as a milestone for tax equity. The new AIT rules, effective from January 1, 2025, will fully align provincial taxation for small farmers with the federal personal income tax regime, and for commercial agriculture with the corporate income tax regime. Tax liabilities for the second half of FY25 will be collected in September 2025.

To ensure the smooth rollout of these changes, the provinces are working closely with the World Bank and the IMF to develop comprehensive implementation plans. These plans include robust compliance strategies to identify under-reported income and targeted communication campaigns to inform stakeholders. The new legal framework is expected to be fully enforced by the end of June 2025.

In another significant development, provinces are transitioning the General Sales Tax (GST) on services from a positive list (taxing only specified services) to a negative list (taxing all services except those specifically exempted). This change, effective at the start of FY26, is designed to further streamline tax collection. While the negative list is not fully harmonized across provinces due to regional differences and existing agreements, it primarily exempts essential services such as health, education, and government-provided services.

The harmonized property tax framework and other provincial tax reforms will be key topics at the upcoming National Tax Council (NTC) meeting, scheduled for early April 2025.