• The income goal of the next year established at RS14.13TR
• The contribution of the provinces helps the centers higher than the fiscal objective, records a lower budget deficit in a decade
• Subsidy allocations have been reduced by 14 percent
• Reduction of debt containment of debt containment of expenses of almost RS2.26tr
• generous tax relief, incentives for the construction sector
• Levy fuel, electricity surcharges that will increase next year
• Dura PlayDown planned in non -filtering, tax evaders
• Squeezed development expenditure to reduce deficit
Islamabad: maintaining an aggressive position on fiscal consolidation, as required Storgative Industrial Sector Anurgo.
At the same time, however, the Government announced that it was imposing a ‘carbon tax’ of RS2.5 per liter in gasoline, diesel and baking oil in the next fiscal year, which will double the following year. It also introduced a 5 percent tax in large pensions, an 18 percent tax in imported solar panels and an increase in the surcharge of electricity debt service to finance not only interest payments, but also the main debt. In addition, he announced the gradual elimination of tax exemptions for tribal areas that begin this year.
Ambitious objectives
Despite a record fiscal deficit of RS1.07 billion registered for the current fiscal year, the Minister of Finance established the objective of income of next year at RS14.13TR, an increase of 18.7pc with respect to the revised estimate of this year of RS11.9TR, against the original budget objective of RS12.97tr. This would include approximately RS840 billion in additional income measures, in addition to an automatic tax increase of RS1.39TR backed by projected inflation of 7.5PC and economic growth of 4.2PC and the containment of expenses of almost RS2.26tr (equivalent to 2pc of GDP), the reduced costs of the auda of the service costs are made, and also in the expense of development and the public development.
Not only the Federal Income Board (FBR), but the provincial governments could not fulfill their commitment to maintain a surplus of RS1.22TR for the current year. Even so, they provided a vital support to the federal government with a surplus of RS1.01tr.
This contribution allowed the Federal Government to overcome its fiscal objective and register a budget deficit of only 5.6pc of GDP (RS6.44tr), the lowest in a decade since fiscal year 2015-16, compared to a higher projected deficit of 5.9pc (RS7.28tr). This remarkable fiscal tightening was achieved by punishing additional fiscal measures that amounted to RS2.2tr (1.8pc of GDP) along with a reduction in spending as interest rates decreased from a 22PC historical peak.
Consequently, the FY2025–26 budget establishes an ambitious objective to reduce the budget deficit to 3.9pc of GDP (RS5.04tr), depending on a cash surplus of RS1.46tr of the provinces. As a result, the main budget surplus is expected to increase at 2.4pc of GDP, or RS3.17TR, for next year, above the 2.2pc of GDP this year (RS2.5tr).
Relief for selected groups
The government found enough fiscal space to offer relief to the salaried class, which have been overwhelmed by high tax rates, reducing real income and severe inflation in the last two years.
The Minister of Finance proposed a reduction in the income tax in half, to 2.5PC, on the annual income between RS600,000 and RS1.2 million. It is pertinent to mention that there was a discrepancy in the income tax rate for the lowest tax group announced by the Minister of Finance and the tax rate mentioned in the Finance Law, which was even lower to 1 percent. Clarity is expected on this matter. Similarly, it was proposed that the annual tax on a salary of RS1.2M be reduced to RS6,000, below the current RS30,000. Mr. Aurengzeb added that the income tax rate for those who earn up to RS2.2M per year would be reduced to 11 percent, below the current 15PC. Similarly, the tax rate has been reduced to 23pc of 25pc for wagening entrance between RS2.2m and RS3.2m. In addition, the finance minister acknowledged that oppressive tax rates were promoting highly qualified professionals to migrate, contributing to a “brain leak.” As a corrective measure, he announced a 1 percent reduction in the surcharge in annual income higher than RS10M.
In addition to this, a 10 percent increase in salaries and an 7PC increase in pensions for government employees was announced. The salaries of the Armed Forces personnel would also increase by 25 percent, including a special assignment of aid in recognition of their recent heroic performance in response to Indian aggression, said finance minister.
At the same time, the Government introduced a generous fiscal relief and incentives for the construction sector, including access to cheaper mortgage financing, in an attempt to revive large -scale manufacturing, which has been hiring during the last three years due to unprecedented increases in the energy and costs of the ascendants. To this end, the Minister of Finance announced a reduction in the retention of taxes on the purchase of real estate from 4pc to 2.5pc. The following two current tax rates of 3.5pc and 3PC will also be reduced to 2pc and 1.5pc respectively.
In addition, last year a Federal Tax Service of 7PC Tax on the transfer of commercial properties, plots and houses has also proposed to abolish.
As a new initiative, the budget includes a tax credit on mortgages for houses up to 10 Marla (250 square yards) and floors of up to 2,000 square feet. This adds to a new scheme aimed at promoting mortgage financing. The Minister of Finance also announced a reduction in the Timbre Tax in Property Purchases in the Capital Territory of Islamabad, from 4pc to 1 percent, and expressed the hope that provincial governments do the same by reducing strong taxes on real estate properties.
The government also managed to persuade the IMF to exempt fertilizers and tax insecticides for the current year, in an effort to position agriculture as the engine of economic growth.
Tightening the network
On the other hand, the finance minister announced an increase in the tax rate on interest income from 15pc to 20pc, a measure that can discourage savings. However, he clarified that this would not apply to small savers or investments in national savings schemes.
In the same way, digital markets and online companies will be announced to the fiscal network through messaging companies, it was announced. The minister also announced a 5 -piece income tax on pensions greater than RS10M per year for pensioners under 70 years. In a movement to promote an economy without cash, the non -filter will now be subject to an early tax of 1 percent on cash withdrawals, to the maximum of existing 0.6pc. The contribution companies will be discouraged to make cash sales exceeding RS200,000. Additional measures have also been introduced to encourage online transactions and digital payments.
Strict steps against non -filtering will be taken. Only taxpayers who submit their assets may make large financial transactions, such as the purchase of vehicles, immovable properties, values, mutual funds or the opening of certain bank accounts.
Pressing the rope around unregistered merchants, the Minister of Finance proposed the freezing of bank accounts, restrictions on property transfers and the sealing of commercial facilities in cases of serious violations of sales tax laws, with the participation of commercial agencies. Along the same lines, he also announced a notional reduction of 0.5PC in the super taxes for corporate companies with annual income between RS200m and RS500m.
Improved tax collection
The Minister of Finance pointed out an increase in the relationship imposed on GDP, which historically has been one of the weakest aspects of Pakistan’s economy, from 8.8 percent in June 2024 to 10.3pc in the first nine months of the current year. It is projected that this figure will reach 10.4pc before June 30, 2025. Including income without taxes, the Federal GDP tax has improved at 11.6pc, which represents an increase of 1.2 percentage points, compared to 0.8 percentage points last year. The relationship imposed on consolidated GDP, added the Minister of Finance, has reached 12.3pc, including a contribution of 0.7pc of the provinces. “The 1.6pc of the GDP increase in FBR income is not only the highest in Pakistan’s history, but also rarely seen any other place in the world in recent times,” the minister boasted.
Balancing the budget
The Government has established the income objective without taxes for next year at RS5.15TR, slightly higher than the current year RS4.9TR. This carries the total gross federal income (FBR more without taxes) to RS19.28TR, above the original budget objective of the current year of RS17.8TR, which was then reviewed until RS16.8tr. After transferring RS8.2tr to the provinces, net federal income is estimated at RS11.07TR for next year, compared to RS9.8tr this year. This leaves a federal projected deficit of RS6.5tr, a reduction of the RS8.5tr budgeted of the current year, which was then reviewed at RS7.44tr.
Subsidy allocations have been reduced by 14PC to RS1.19TR for next year, below RS1.38TR in the current year. This is mainly due to a 13pc cut (RS154B) in energy sector subsidies. The tariff differential subsidy for Ex-Wapda distribution companies has been reduced by 9.7pc (RS27B) to RS249B, from RS276BN this year. Meanwhile, the tariff subsidy for K-Electric has been reduced by 28pc (RS49bn), at RS125BN from RS174BN. An even greater reduction to the tariff subsidy for Azad Jammu and Kashmir, which has been reduced to RS74BN of RS108bn, reflects a 31.5pc cutting, has been applied even greater than RS74bn.
The main income element is expected to be the oil tax in POL products, projected in RS1.47TR, which is a 26PC increase with respect to the current year RS1.16TR. An even greater contribution of the profits of the State Bank of Pakistan is anticipated, estimated at RS2.4TR for next year, although this marks a slight decrease in RS2.6tr of this year.
The cost of service of the debt for next year has been estimated at RS8.2TR, which represents an 8PC decrease in the actual reimbursements of RS8.95tr, and 16pc lower than the estimate of the original RS9.78tr budget. The pension expense is expected to increase around 4 percent, reaching RS1.06tr, compared to RS1.01TR this year. It is projected that military pensions will grow in 12PC to RS742B, compared to a 10PC increase in civil pensions, which are expected to reach RS243BN.
As a result, the total current expenditure has been established in RS16.29TR for next year, slightly below the figure of this year of RS16.39tr.
Posted in Dawn, June 11, 2025
