The provincial governments in Pakistan are required to gain approval from their respective cabinets and assemblies for the implementation of General Sales Tax (GST) on services in line with the National Fiscal Pact under the IMF program.Â
According to a news report, this shift, which will take effect from July 1, 2025, will transition from a positive list approach to a negative list system for GST on services.
The Federal Board of Revenue (FBR) will be tasked with implementing the GST on services for Islamabad Capital Territory (ICT), while the provinces will oversee it within their jurisdictions.
Currently, provinces collect GST on services based on a positive list, where only specified services are taxed. Under the new arrangement, provinces will replace this system with a negative list, where only certain services will be exempted from GST.
All provinces will need to adopt a similar approach for creating the negative list, with minor variations allowed for some provincial preferences. The new system aims to reduce tax evasion by clearly defining which services will be exempted from GST, thereby increasing tax collection efficiency.
In addition to this change, the provinces must fulfill six key conditions outlined in the IMF program, one of which includes establishing a mechanism for collecting Agriculture Income Tax (AIT). This is part of an ongoing effort to align provincial tax regimes with federal income tax frameworks.
The National Fiscal Pact stipulates that the GST on services will shift from a positive list to a negative list starting in the fiscal year 2025-26, marking a significant step toward broader tax reforms. The move is expected to enhance revenue generation from both corporate taxes in agriculture and GST on services, contributing to Pakistan’s tax base expansion.
Provincial authorities are also working to implement administrative reforms to address compliance gaps, which include aligning property tax systems and introducing necessary legal and regulatory changes. The National Tax Council is set to play a key role in overseeing these reforms, aiming to improve the effectiveness of the tax collection system.
