Govt Eyes Tax Hikes on Bank Withdrawals, Petrol Vehicles in FY2025–26 Budget

As part of its strategy to expand the tax base and meet IMF revenue targets, the federal government is preparing to introduce sweeping tax reforms in the upcoming FY2025–26 federal budget, insiders told reporters on Monday.

Key proposals under consideration include raising the withholding tax on cash withdrawals by non-filers from 0.6% to 1.2%, especially for transactions exceeding Rs50,000 per day. The move is aimed at discouraging undocumented cash dealings and encouraging formal banking activity.

Also under review is a plan to increase taxation on profit-generating financial instruments, such as bank deposits and savings schemes. Higher taxes on capital gains and interest earnings may be introduced to generate more fiscal space.

In a major policy shift, the government is expected to impose a fresh levy on petrol and diesel-powered vehicles—a measure linked to environmental goals and intended to promote electric and hybrid vehicle adoption. The GST on locally manufactured small cars (up to 850cc) may also be increased from 12.5% to 18%, bringing it in line with the general GST rate.

The e-commerce sector is likely to face an 18% GST for the first time, up from the current reduced rate, as part of efforts to standardize taxation across all commercial platforms.

Meanwhile, the business community may receive some relief. The super tax on large corporations, which was previously increased, may now be reduced to encourage investment and job creation, subject to final approval by the finance ministry.

A senior FBR official stated, “Taxation is no longer just about revenue — it’s about behavioural change. The future lies in formal, green, and digital economies.”

The final proposals are expected to be unveiled in the budget presentation later this month.