By Staff Reporter :
Islamabad: Finance Minister Muhammad Aurangzeb on Tuesday presented the federal budget for the fiscal year 2025-26, outlining key reforms and growth targets aimed at building a “competitive economy” amid calls for stability and equity.
Unveiling a total budget outlay of Rs17.6 trillion—down by Rs1.3 trillion from the outgoing year—the government has set an economic growth target of 4.2% for FY26, compared to the 2.7% achieved in FY25. The inflation rate is expected to average 7.5%, with a fiscal deficit projected at 3.9% of GDP and a primary surplus at 2.4%.
“Our focus is on economic stability, sustainability, and equitable prosperity,” said Aurangzeb in his budget speech, which faced interruptions from Pakistan Tehreek-e-Insaf (PTI) lawmakers in the National Assembly.
Relief for Salaried Class
In a significant move aimed at offering respite to wage earners, the government announced tax relief across several income slabs. For those earning between Rs600,000 and Rs1.2 million, the tax rate has been halved from 5% to 2.5%.
Similarly, the tax rate has been reduced from 15% to 11% for incomes between Rs1.2 million and Rs2.2 million. Those earning between Rs2.2 million and Rs3.2 million will now pay 23%, down from 25%.
A 1% reduction in the income surcharge has also been introduced for individuals earning over Rs10 million, as part of efforts to curb the ongoing brain drain. However, in an effort to promote horizontal equity, the tax on interest income has been raised from 15% to 20%.
Aurangzeb also promised a simplified tax filing process starting July, aimed at expanding the tax base and improving compliance.
Solar Panel Sales Tax
In a controversial move likely to stir public debate, the government has proposed an 18% sales tax on solar panels, a decision that may impact renewable energy adoption amid rising electricity costs.
Defence, Pensions, and Subsidies
The defence budget saw a substantial increase, rising over 20% to Rs2.55 trillion, from Rs2.12 trillion in FY25. Pensions have been allocated Rs1,055 billion, while subsidies stand at Rs1,186 billion. The government has also earmarked Rs1,928 billion for various grants.
Social Safety & Development Spending
The Benazir Income Support Programme (BISP) will receive Rs716 billion—21% more than last year. The Public Sector Development Programme (PSDP) is allocated Rs1 trillion, with Rs90.2 billion reserved for 47 energy sector development schemes.
Revenue & Debt Management
The Federal Board of Revenue (FBR) has been tasked with collecting Rs14.13 trillion in FY26—up 9% from the current fiscal year—with Rs6.9 trillion from direct taxes and Rs7.2 trillion from indirect taxes. The government also aims to raise Rs5.15 trillion from non-tax revenues.
Mark-up payments continue to dominate government expenses, with Rs8.2 trillion—47% of total expenditure—allocated toward debt servicing.
Aurangzeb reiterated the government’s commitment to fiscal reforms, announcing plans to issue Panda Bonds to tap into the Chinese capital market. He also confirmed that the long-delayed privatization of Pakistan International Airlines (PIA) and the Roosevelt Hotel will be completed in the upcoming fiscal year.
Economic Outlook
Despite missing its 3.6% growth target for FY25, the government cited positive trends, including a 4.8% rebound in industrial activity and a current account surplus of $1.5 billion. Remittances are expected to reach $37-38 billion, boosting the economy’s size to $411 billion and raising per capita income to $1,824.
Prime Minister Shehbaz Sharif, addressing a federal cabinet meeting earlier in the day, expressed optimism, calling Pakistan’s economic indicators “satisfactory.”
“After defeating India in conventional warfare, we must now surpass them economically,” he said.
The Finance Bill 2024 will be presented in the Senate as per Article 73 of the Constitution, following its introduction in the National Assembly.
