The Federal Board of Revenue (FBR) has implemented a significant change in the Finance Act 2025 by removing recreational clubs from the legal definition of non-profit organizations, a move aimed at tightening the country’s tax net and enhancing revenue collection. This new development is expected to directly impact clubs that charge high joining fees, particularly those exceeding Rs1 million per member.
This exclusion has been officially included in the Finance Act 2025 under revisions to Section 2(36) and Section 18(1)(b) of the Income Tax Ordinance, which outlines the criteria for taxable entities and the types of income subject to taxation in Pakistan.
Previously, recreational clubs often claimed non-profit organization (NPO) status, allowing them to enjoy various tax exemptions. However, the FBR has now made it clear that recreational clubs involved in commercial transactions—such as selling goods or offering services to their members—do not qualify for this exemption if they collect high-value fees.
The FBR’s updated interpretation clarifies that income earned through the sale of goods, immovable property, or services by cooperative societies to their own members has always been taxable. This clarification was originally included in a previous amendment but has now been expanded.
Now, with the new amendment, this taxability rule has been extended to recreational clubs, especially those that charge significant joining fees. As per the FBR’s release, any recreational club that charges over Rs1 million as a joining fee for any class of new members will be considered a taxable entity, no longer benefiting from NPO status.
This revision will affect a wide range of exclusive clubs and social venues, including elite sports clubs, golf clubs, and other high-end recreational facilities. These clubs, previously enjoying tax benefits under the guise of being non-profit organizations, will now be liable to pay taxes on income derived from transactions with their own members.
For example, if a club is offering gym services, spa packages, or restaurant facilities exclusively to its members and charges a joining fee above Rs1 million, that income will now be treated as commercial income and taxed accordingly.
The FBR’s decision stems from a broader effort to expand the tax base and prevent revenue leakage. There has been growing concern among tax authorities that certain wealthy entities were exploiting the non-profit label to avoid taxes while running lucrative operations.
By targeting recreational clubs with high membership fees, the FBR intends to bring financially strong institutions into the tax fold, which previously operated in a legally grey area.
This move aligns with Pakistan’s commitments to international lenders like the International Monetary Fund (IMF), which has repeatedly urged the government to increase tax revenue and improve transparency in fiscal governance. For more details on recent IMF-related developments, see Pakistan’s Fiscal Challenges in IMF Review.
In technical terms, Section 18(1)(b) of the Income Tax Ordinance was originally focused on the taxation of cooperative societies, especially regarding income from members. The Finance Act 2025 now clarifies that the same logic applies “mutatis mutandis” to recreational clubs, making their income from internal transactions subject to tax.
The term mutatis mutandis means that the same principle is applied with necessary adjustments. So, while recreational clubs are not cooperative societies, they are being treated similarly for tax purposes due to the nature of their operations.
Several high-profile recreational clubs across major cities like Karachi, Lahore, and Islamabad are expected to be impacted. According to industry sources, these clubs may challenge the FBR’s move legally or lobby for reconsideration. They argue that many of these fees go toward maintaining infrastructure and facilities, not for profit-making purposes.
However, the FBR remains firm in its stance, emphasizing that commercial gains under the label of services must be taxed, regardless of whether the clients are club members or the public.
The FBR has sent a clear message that tax loopholes will be closed, and sectors previously operating under ambiguous definitions will now be scrutinized more closely. Clubs and similar entities are being advised to review their financial models, particularly their membership structures and fee policies, to avoid facing hefty tax penalties or retrospective audits.
Tax consultants also suggest that recreational clubs may need to reassess their financial classification and maintain proper documentation to comply with the new legal framework. Failure to do so could result in fines, back taxes, or litigation.
