Sales Tax in Budget 2026-27: The Key Changes

Sales tax: the moving parts in 2026-27

The Finance Act 2026 (Federal Budget 2026-27), effective 1 July 2026, makes several notable changes to sales tax. Goods remain a federal levy administered by the FBR under the Sales Tax Act 1990, while services are taxed by the provinces. This article focuses on the federal sales tax changes companies should know.

Exemptions added and withdrawn

• Magazines are exempted from sales tax.
• Tampon tax abolished: sales tax on these products is removed.
• Family-planning devices: the exemption is withdrawn.
• Electric vehicle CKD exemption is extended to 30 June 2027.
• Refinery upgrade capital goods are exempt.

Third Schedule expanded

The Third Schedule of the Sales Tax Act 1990 has been expanded. Under this schedule, sales tax is charged on the retail or consumer price at the manufacturing stage. This means more items will have sales tax calculated on their printed retail price at the point of manufacture, rather than at the ordinary transaction value down the chain. Manufacturers of newly listed goods should review their pricing and tax calculation accordingly.

VAT recovery on imported raw materials

A 3% value-added tax is to be recovered from manufacturers where imported raw material is sold in the same state, meaning without being used in manufacturing. This discourages the diversion of duty-favoured imported inputs into the open market.

Withholding scope widened

• Toll manufacturers are required to withhold sales tax from unregistered buyers.
• The withholding scope for AOPs and individuals has been enhanced.

These measures bring more transactions into the documented sales tax net and place additional withholding responsibilities on businesses dealing with unregistered counterparties.

A quick reference

Apply sales tax correctly with Zaffre Axon

With exemptions shifting and withholding scope widening, getting the right sales tax treatment on every transaction is harder than it looks. Zaffre Axon, from Zaffre Tech, applies sales tax automatically across invoices and finance, along with FBR slabs, EOBI and withholding, all from one central setup. As the Budget 2026-27 changes take effect, Zaffreaxon helps make sure each invoice is taxed correctly, while Zaffre HRM keeps payroll compliant.

Zaffretech updates the sales tax setup when the budget changes, so your billing keeps moving.

References: Sales Tax Act 1990; Finance Act 2026 (Federal Budget 2026-27); FBR sales tax measures.

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