FBR to Withdraw Tax Exemptions From Donations, Non-Profit Organizations

The government will repeal the remaining income tax exemptions for donations and non-profit organizations in the Second Schedule of the Income Tax Ordinance (ITO), making them eligible for tax credits. According to the IMF’s staff report under the Extended Fund Facility (EFF) issued on Friday, tax policy reforms aimed at simplifying collection and broadening the tax base. In the next three years, the government vowed to intensify its efforts to simplify its tax policy. The authorities will start by enhancing the Annual Tax Expenditure Report with a chapter dedicated to evaluating the costs and benefits of tax incentives. This review will enable the government to assess current tax credits and exemptions under the Income Tax Ordinance (ITO), repealing those whose costs outweigh their benefits and ensuring that any new concessions are grounded in a thorough cost-benefit assessment. “In line with our commitment to transforming direct taxation, we plan to amend the ITO to ensure equitable taxation of all income sources. Additionally, the government will repeal the remaining exemptions for donations and non-profit organizations in the Second Schedule of the ITO, making them eligible for tax credits instead,” it said. To pave the way for a more efficient and straightforward sales tax system, the government will introduce a single turnover-based registration threshold for all businesses by FY27. Businesses exceeding this threshold will be required to register for both income tax and sales tax. The government said it will continue to streamline the GST. In FY26 we aim to establish a unified reduced rate, therefore we plan to reclassify all products that will be taxed in FY25 from 5 percent GST to the 10 percent category. Lastly, we will persist in our efforts to transform the GST into a broad-based VAT, the IMF report added.