FY27 Budget Notified: 10% Tax on Banks and Fertilizer Manufacturers Now Effective

What the FY27 Budget Notification Changed

The federal government has formally issued the gazette notification for the Finance Act 2026, which means the measures outlined in the new budget are now officially effective from July 1. This notification brings into force various changes to taxes, customs duties, and other fiscal policies across the economy.

Among the key changes, the government has introduced a specific 10 percent tax on the income of banking companies and fertilizer manufacturers. This tax applies to any income exceeding Rs. 150 million annually for these two sectors. This measure is distinct from other general corporate taxes and targets these industries directly.

The Finance Act also includes revised advance tax rates on property transactions, with sellers now paying 2.75 percent of the gross sale amount and buyers subject to 1.25 percent of the property’s fair market value. Additionally, an 8 percent tax has been introduced for corporate entities with annual income above Rs. 500 million. A 0.5 percent withholding tax will also apply to international transactions made through credit and debit cards.

While these other measures are part of the broader budget, their impact on specific listed companies on the Pakistan Stock Exchange is either too generic, too indirect, or too negligible to map under our rules. For instance, the general 8% corporate tax, while affecting many large companies, does not create a differential impact across specific sectors in a way that allows for targeted stock analysis. Similarly, the property transaction taxes primarily affect real estate demand, but there are no pure-play listed real estate or REIT companies in our coverage list, and the ripple effect on sectors like cement and steel would be a second-order impact, which we do not map. The withholding tax on international card transactions is a consumer-level tax with no clear, material impact on any specific listed company's earnings.

Why it matters for Bank and Fertilizer Stocks

The newly implemented 10 percent tax on income exceeding Rs. 150 million directly impacts the profitability of companies in the banking and fertilizer sectors. This is an additional tax burden that will reduce their net income, meaning a smaller portion of their earnings will be available for shareholders or reinvestment. For banks, this will compress their overall profitability, which is already subject to other taxes like the super tax. For fertilizer manufacturers, this new levy adds to their cost structure, potentially affecting their ability to manage margins, especially given the sensitivity of their business to gas feedstock costs and urea prices.

This measure acts as a super-tax on these specific industries, directly reducing their bottom line. Since it is a budget measure, its impact is expected to be sustained over the long term, affecting financial performance for the foreseeable future.

Which stocks, and why

Several companies in the banking and fertilizer sectors will experience a negative impact from this new tax:

In the Commercial Banks sector, all listed banks are likely to be affected as their income typically exceeds the Rs. 150 million threshold. This includes Habib Bank, United Bank, MCB Bank, Meezan Bank, Bank Alfalah, Bank Al Habib, National Bank of Pakistan, Askari Bank, and Faysal Bank. For each of these, the 10 percent tax on income above Rs. 150 million will directly reduce their net earnings, leading to a negative impact on their financial performance.

Similarly, in the Fertilizer sector, major manufacturers are also subject to this new tax. Companies like Engro Corporation (through its fertilizer segment), Engro Fertilizers, Fauji Fertilizer Company, Fauji Fertilizer Bin Qasim, and Fatima Fertilizer will see a portion of their income above the Rs. 150 million threshold taxed at an additional 10 percent. This will negatively affect their profitability and financial results.

What to watch

Investors should closely monitor the upcoming quarterly and annual financial results of these banking and fertilizer companies. Their earnings reports will provide concrete data on how this new tax measure has impacted their net income and overall profitability. Any further clarifications or amendments to the Finance Act 2026 by the government could also alter the outlook. Additionally, sector-specific performance metrics, such as net interest margins for banks and urea off-take for fertilizer companies, will remain important indicators to watch in conjunction with the tax impact.