ISLAMABAD (Kashmir English): Minister for Finance and Revenue Muhammad Aurangzeb is presenting the annual federal budget 2025–26 in a National Assembly session, chaired by Speaker Sardar Ayaz Sadiq.
As the government minister is presenting the budget, opposition members have staged a protest in the house and chanting slogans against the government.
The federal govt has set a total budget outlay of Rs17.573 trillion — a 6.9 per cent decrease from the previous year’s budget — for fiscal year 2026.
At the outset of his speech, the finance minister said that this budget is being presented during a historic moment, as the country pressed on through difficult times.
The minister highlighted the current account surplus, remittances, and the stability of the rupee while also mentioning the positive reports from international credit rating agencies, such as Moody’s and Fitch, that upgraded Pakistan’s rating.
Recalling the achievements under the PM Shehbaz-led government, the finance minister highlighted reforms in the Federal Board of Revenue (FBR), saying that Pakistan’s tax-to-GDP ratio was only 10%. “It was imperative to increase the ratio to 14%.”
Govt sets 4.2% GDP growth target
Finance Minister said that he government has targeted a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25, while inflation’s average ratio is likely to remain at 7.5% in the next fiscal year.
As per the Finance Bill 26, the government has set an ambitious tax collection target for the FBR at Rs14,131 billion, an 8.95pc increase from last year’s goal.
The official document added that the current account deficit target has been set at $2.1 billion, according to the annual plan for the upcoming FY. In relation to the gross domestic product (GDP), the current account deficit is projected to remain at 0.50 per cent, the official document states.
The budget deficit has been contained at 3.9% of GDP, while a primary surplus of 2.4% of GDP has been achieved, reflecting improved fiscal discipline.
The target for goods exports has been fixed at $35.3 billion, and imports are expected to reach $65.2 billion. The target for services exports has been set at $9.6 billion, and remittances for the next fiscal year are expected to total $39.4 billion.
Income tax relief for the Salaried class
The government has proposed new income tax slabs for salaried individuals in the upcoming federal budget 2025-26.
As per details, the new budget reduces tax rates across all income slabs for salaried individuals. The salaried people earning up to Rs 6 lakh annually are exempted from tax.
People earning Rs 6 lakh to Rs 1.2 million per annum will pay 1 per cent tax. The tax liability on an income of Rs1.2 million reduced from Rs30,000 to Rs6,000.
For the income up to Rs2.2 million, the tax rate has been slashed from 15 per cent to 11 per cent. The tax rate has been lowered from 25 per cent to 23 per cent for the income between Rs2.2 million and Rs3.2 million.
These reductions across all tax slabs reflect the government’s commitment to supporting the salaried class, which has faced significant economic pressures due to inflation and rising living costs.
Real estate tax relief
To revive the real estate market and promote economic activity, the government has introduced several incentives. The government proposed a reduction in withholding tax for;
- 4% to 2.5% for the first slab
- 3.5% to 2% for the second slab
- 3% to 1.5% for the third slab
These reductions are likely to make property purchases more affordable for buyers and stimulate demand in the real estate market.
Furthermore, the government has also proposed the abolition of the federal excise duty (FED) on immovable properties. The 7% duty on transfers of commercial properties, plots, and houses has been abolished, and reduced Advance Tax by 150bps on immovable property.
To encourage homeownership, the government has announced a tax credit on houses up to 10 marla and flats of 2,000 square feet. Additionally, the federal government has also pledged to expand mortgage financing, particularly for salaried individuals, to make housing more accessible to the masses.
Salient Features of the Sales Tax on Services
The finance minister proposed several salient features of the Sales Tax on Services for FY 2025-26.
For revenue measures;
- Integration of service providers with Board’s computerized system for real-time reporting of taxable service activity – General Order to prescript mode and manner.
- Board to notify a Negative List of exempt services for harmonized, smooth, and gradual transition from the positive list to the negative list. This will expand the scope of services leviable to service sales tax under the Islamabad Capital Territory.
To streamline measures;
- Exemption of sales tax on services acquired by diplomats and diplomatic missions etc. aligned with the scope of exemptions to such persons available under the Sales Tax Act, 1990, for uniformity and harmonized regime on goods and services.
Increase in Salaries, Pension
The federal government has proposed 10 per cent increase in salaries for its employees, while pension income is proposed to be increased by 7 per cent.
The government has allocated Rs1,055 billion for pensions and Rs1,186 billion under subsidies. Meanwhile, Rs1,928 billion has been budgeted for grants.
Other relief measures in the Budget
- Income tax, along with withholding exemption for FATA/PATA to continue for one more year
- 25% rebate against tax payable by full-time teachers and researchers will be restored retrospectively
- GST exemption on local sales of Bun and Rusk, currently charged at 10 per cent
- Housing subsidy of Rs5 billion for FY26 and a markup subsidy of additional Rs5 billion
- Allocation of payments to IPPs to the extent of PKR 95 billion
Lower tariff rates
The federal government has lowered tariffs as part of the newly proposed National Tariff Policy 2025-30, aimed at simplifying customs structures and boosting key economic sectors.
Under the new policy, the government will streamline customs duties into four slabs: 0%, 5%, 10% and 15%, with the highest tariff capped at 15%. The changes will be implemented gradually to minimize disruption for businesses and trade, the minister said.
Increase in
In Finance Bill 2025-26, the federal government has proposed an increase of 20 per cent in the defense budget after a conflict with India last month.
The budget presented on Tuesday by Prime Minister Shehbaz Sharif’s government allocated 2.55 trillion rupees ($9 billion) to defense in July-June 2025-26, up from 2.12 trillion.
“National defense is the government’s most important priority,” the finance minister declared while announcing the allocation.
Public Sector Development Programme
The federal government has allocated Rs4.223 trillion for the Public Sector Development Programme (PSDP). The total federal PSDP has contracted with Rs1,354.8 billion, representing a 20pc decrease from last year’s Rs1,696 billion.
Provincial PSDP allocation, on the other hand, has risen 36.9pc to Rs2.869 trillion, up from Rs2,095 billion in the previous year.
Major allocations under PSDP
- Board of Investment – Rs1,105 million
- Cabinet Division – Rs70,388 million
- Climate Change Division and Environmental Coordination Division – Rs2.783 billion
- Commerce Division – Rs50 million
- Communication Division (other than NHA) – Rs149.150 million
- Defence Division – Rs11.553 billion
- Defence Production Division – Rs1.786 billion
- Establishment Division – Rs495 million
- Federal Education and Professional Training Division – Rs18.580 billion
- Finance Division – Rs851 million
- Higher Education Commission – Rs39.488 billion
- Housing and Works Division – Rs15.005 billion
- Human Rights Division – Rs23 million
- Industries and Production Division – Rs1.904 billion
- Pakistan Atomic Energy Commission – Rs761 million
- SUPPARCO – Rs5.418 billion
- Railways Division – Rs22.415 billion
- Special Investment Facilitation Council Division – Rs503 million
- Maritime Affairs Division – Rs3.465 billion
Allocation to build new water reserves
Senator Aurangzeb announced an allocation of Rs. 133,000 million for the Water Resources Division to fund new projects and ongoing projects.
Out of that amount, Rs. 95,000 million has been allocated for 15 key initiatives. These included projects aimed at enhancing water resources, improving flood resistance, installing telemetry systems across the Indus Basin, and safeguarding water supplies.
Specifically, Rs. 32,700 million has been allocated for the Diamer-Bhasha Dam, Rs. 35,700 million for the Mohmand Dam, and Rs. 3,200 million for the Karachi Bulk Water Supply (K-IV) project. Additionally, Rs. 10,000 million has been allocated for the lining of the Kalri Baghar (KB) Feeder, and Rs. 4,400 million for the installation of telemetry systems at the Indus Basin.
