FBR Tightens Tax Rules on Recreational Clubs in Finance Act 2025
In a move that could significantly impact the bottom line of elite social and sports clubs across Pakistan, the Federal Board of Revenue (FBR) has redefined the tax status of recreational clubs, stripping them of their non-profit designation under the latest Finance Act 2025.
No More Tax Breaks for Exclusive Clubs
Previously treated in a similar fashion to cooperative societies—organisations that traditionally enjoy tax exemptions due to their non-profit nature—recreational clubs are now being reclassified. This change, made through amendments to Section 18 of the Income Tax Ordinance, brings such clubs under a tax regime that applies to entities earning revenue from selling goods, offering services, or disposing of immoveable property to their own members.
The FBR’s updated interpretation effectively puts an end to the preferential treatment these clubs have long enjoyed, particularly those that operate on large incomes but continue to claim non-profit status.
High-End Membership Fees Trigger Exclusion
A second major change has been made to Section 2, clause (36) of the ordinance. This specifically targets clubs charging exorbitant fees to join—namely, those asking for more than Rs1 million as a one-time membership or joining fee. Such organisations will now be automatically excluded from the definition of a non-profit entity, regardless of how they classify themselves.
This clause appears aimed at luxury recreational outfits—golf clubs, private member lounges, and elite fitness centers—that operate as exclusive institutions for the affluent, while enjoying tax advantages meant for community-benefit groups.
Why It Matters
By tightening the legal definitions and clarifying tax obligations, the FBR is clearly signaling its intent to close loopholes used by wealthier entities under the guise of non-profit status. With the tax base under pressure and revenue generation high on the government’s agenda, this move is both strategic and symbolic.
It’s a shot across the bow for clubs operating with large budgets and premium clientele—either adapt to the new structure or face the taxman.
