Pakistan Federal Budget 2025–26: crisp summary for CSS PMS Aspirants

Pakistan Federal Budget 2025–26: A Reform-Centered Vision for Economic Recovery

On June 10, 2025, Pakistan unveiled its Rs. 17.6 trillion federal budget in the National Assembly — a document aimed at economic revival, tax reform, and digital modernization, framed within IMF recommendations. It seeks to support citizens while enforcing fiscal discipline and accelerating structural reforms.

Macroeconomic Objectives: Growth & Revenue Targets

The government has laid out bold ambitions for the economy:

• GDP Growth: Aiming for 4.2% growth in FY26, compared to 2.7% last year — a strong signal of economic rebound.

• Tax-to-GDP Ratio: A planned jump from 10% to 14%, reducing reliance on debt.

• FBR Revenue Target: Set at Rs. 14.13 trillion, reflecting a 9% increase over FY25.

• Non-Tax Revenue Goal: Rs. 5.15 trillion to broaden domestic funding.

Tax Reforms: Expanding the Net

Several new tax initiatives have been introduced to widen the base:

• New Tax Measures: Over Rs. 623 billion in new taxes aimed at agriculture, freelancers, and digital platforms.

• Action on Non-Filers: Restrictions on non-filers for buying property, vehicles, or making large transactions.

• E-Commerce: Final withholding tax (0.25%–2%) on online sales collected via banks and couriers.

• Property Transactions:

• Lower advance tax (1.5%–2.5%) for filers.

• High rates for non-filers: Up to 18.5% on purchases, 11.5% on sales.

• Capital Gains & Dividends: Enhanced tax rates on shares, property, and mutual fund returns (up to 25%).

Relief Measures: Focus on Salaried and Middle-Class Citizens

• Income Tax Relief:

• No tax on annual income up to Rs. 600,000.

• Reduced tax rates in higher brackets (e.g., 1% for Rs. 600,001–1.2 million).

• High-Income Surcharge: Reduced from 10% to 9% for very high earners.

• Home Loan Credit: Restored tax credit on mortgage interest for homes/flats of certain size.

• Government Salaries & Pensions:

• 10% salary raise for employees.

• 7% pension increase for retirees.

• Academic Rebate: 25% tax rebate reinstated for teachers and researchers (retroactive from July 2022).

Spending Priorities and Development Focus

• Defense Budget: Rs. 2.55 trillion allocated — a 20% rise due to geopolitical challenges.

• Development Fund: Rs. 1 trillion for infrastructure via the Public Sector Development Program.

• Debt Servicing: Rs. 8.2 trillion for interest payments — nearly half of total spending.

• Savings: Rs. 1.3 trillion expected through reduced policy rates.

Digital Economy and Transparency Push

• AI in Tax Tracking: Artificial intelligence to monitor tax compliance and trace evasion.

• Recognizing Digital Transfers: Legal acknowledgment of gifts and loans through online payments.

• Cargo Monitoring: Real-time goods tracking system to combat under-invoicing.

• SEZs & STZs: Tax benefits extended till 2035 or 10 years (whichever comes first).

Sales Tax & Compliance Updates

• E-Commerce Enforcement: Tax collected at source by payment gateways and couriers.

• Solar Panels: Withdrawal of sales tax exemption.

• Tribal Areas: Gradual increase in sales tax from 10% to 16% by 2028–29; electricity tax exemptions extended till June 2026.

• Imported Goods: Tax based on 130% of customs value.

• Automobiles: Tax on cars up to 850cc increased to 18%.

 Additional Tax and Regulation Adjustments

• High-Value Pensions: Retirement payments above Rs. 10 million (under age 70) taxed at 5%.

• Withholding Taxes:

• Services: 15% (up from 9–11%)

• Profits on debt: 20% (except govt. securities)

• Cash-Based Sales:

• Disallows 50% of costs if cash sales exceed Rs. 200,000.

• Disallows 10% of purchases from suppliers without NTN.

• Tribal Income Tax Exemption: Extended till June 2026.

• Simplified Appeals: Taxpayers can now approach appellate tribunals directly, skipping commissioner review.

Challenges & Outlook

This budget attempts a delicate balance between immediate relief and long-term economic reform. While middle-class citizens benefit from tax cuts and pay raises, indirect taxes and removal of some exemptions may increase household costs.

The government’s focus on exports, innovation, and digitization is promising, but it must be backed by effective implementation amid inflation and rising debt.

For CSS/PMS Aspirants:

• The budget is a valuable resource for Economic, Current Affairs, and Governance questions.

• Understand the policy trade-offs: short-term relief vs. fiscal sustainability.

• Focus on revenue-side innovations and governance reforms (e.g., AI-based tax tracking, compliance rules).