Key highlights of Pakistan budget for 2025-26
As someone who’s been closely following Pakistan’s financial policies for years, I found this Tuesday’s announcement of the federal budget for fiscal year 2025-26 to be both ambitious and tightly calculated. The government has set an outlay of Rs18.9 trillion, up from the outgoing FY25 plan of Rs17.6 trillion—a 7% increase aimed at driving growth while managing fiscal pressure. The budgeted deficit stands at 3.9% of gross domestic product (GDP), while a primary surplus of 2.4% suggests tighter control on spending. Inflation for the coming year is projected at 7.5%, with sector-wise growth targets set at 4.5% for agriculture, 4.3% for industrial, and 4% for services sectors—indicating a balanced push across the economy.
The FBR is tasked with collecting revenue worth Rs14.13 trillion, reflecting an 18.7% hike from last year, while non-tax income is expected to reach Rs5.15 trillion. Among expenditures, interest expense takes the lion’s share at Rs8.207 trillion, growing YoY towards a projected Rs8.9 trillion. Allocations include Rs1.3 trillion for the Public Sector Development Programme (PSDP), Rs2.55 trillion for defence, Rs1.05 trillion for pensions, and Rs1.19 trillion in subsidies for energy and other vital sectors. Social support hasn’t been ignored either—Benazir Income Support Programme (BISP) will receive Rs716 billion, a 21% increase. The Higher Education Commission is set to receive Rs39.5 billion, and science and technology get Rs4.8 billion, showing a renewed focus on innovation-led development.
From a taxation expert’s lens, the Govt has made some strategic tweaks in the budget for fiscal year 2025-26 that will impact businesses and salaried individuals alike. The Govt has removed the FED on immovable property and reduced Advance Tax by 150bps, a move that may boost real estate transactions. At the same time, there’s no change in capital gain, dividend, or tax on stocks, maintaining investment stability. The existing 5% slab on monthly income between Rs60k-120k is proposed to bring down to 1%, while the subsequent 2 slabs will see their rates reduced by 2 percentage points to 15% and 11%, respectively. Meanwhile, the surcharge rate has been adjusted from 10% to 9%.
The controversial super tax under section 4C will now be applied at reduced rates—half a percentage point lower for each tier: Rs200 million and Rs500 million, respectively. However, the normal tax of 18% is now likely to be applied on small autos under 850cc, while their reduced rate of 12.5% has been removed. Environmentally, the Govt has imposed a carbon tax of Rs2.5/liter on petrol, diesel, and furnace oil starting FY26. Surprisingly, despite the global shift to renewables, an 18% tax has been proposed on solar panels—a move that could discourage adoption. Lastly, there’s no change in FED on Fertilizer and Pesticide, which provides some relief to the agriculture sector.
Taxation for salaried class & pensions
The federal government has proposed a 10% increase in salaries and a pension hike between 7.5% to 10% in the budget 2025-26. However, the salaried class is unlikely to see major relief in taxation, as the IMF has opposed reinstating the tax-free income slab of Rs1.2 million annually. Instead, a minimum 1% income tax is expected for that range, with the tax-free slab remaining at Rs600,000 and only a 2.5% relief in other slabs. The corporate income tax rate is fixed at 2.5%.
Sales tax on non-resident e-commerce sellers
The 2026 budget proposal aims to impose GST on non-resident e-commerce sellers and foreign digital services to close tax loopholes and improve compliance in the digital economy. The FBR plans to require sellers without a physical presence in Pakistan to register for sales tax, while services will be taxed via a reverse-charge mechanism. Platforms like Amazon and AliExpress are targeted to ensure a level playing field with domestic businesses. The government is also reviewing global models to establish a fair and transparent tax system as e-commerce grows rapidly.
Income tax calculator 2025-26 new budget affect your salary
The government unveiled the 2025-26 budget with a tax collection target of Rs14,131 billion, aiming for 4.2% growth, as Finance Minister Muhammad Aurangzeb presented it in the National Assembly on Tuesday. Under the IMF’s watchful eye, the salaried class was promised relief, and an income tax calculator 2025-26 is now key for individuals to ascertain their expected taxes in FY25-26 based on the new salary structure.
Tax relief for property buyers, but not for sellers
The government’s latest budget announcement, delivered by Finance Minister Muhammad Aurangzeb on Tuesday in Lahore, introduced certain tax relief measures for property buyers and sellers, including the abolition of 7% Federal Excise Duty (FED) and a reduction in withholding tax slabs to 2.5%, 2%, and 1.5%, depending on transaction value. Stamp duty in Islamabad was also cut from 4% to 1%, while documents were split into categories of Rs50m, Rs100m, and over Rs100m, with seller tax now 3%, 4.5%, and 5.5% respectively. Despite these steps, industry players, including former ABAD chairman, expressed disappointment, calling the measures inadequate to revive the real estate sector and calling the decision shocking.
Experts pointed out that the government failed to thoroughly examine the longstanding crisis in real estate, and the curbs on non-filers are likely to further slow activity. There is confusion over the eligibility criteria for filers from July 1, and terms like commercial plots, residential houses, and tax credits on 10 marla houses and 2,000 sq ft apartments remain vague. Realtor Asad Tariq, speaking to Dawn, criticized the lack of clarity and said these decisions fail to justify any revival or boom in a sector that impacts several industries directly and indirectly, especially when buyers and developers are penalized for not submitting complete asset and income return details.
Over Rs623bn new taxes unveiled
The government of Pakistan, through the Finance Bill 2025-26, has unveiled over Rs623bn in new taxes, aiming to meet the ambitious Rs14,131 billion target set for 2025-26. This includes extraordinary enforcement measures focusing on non-filers, digital transactions, and e-commerce platforms, along with a hike in withholding tax rates on sales of immovable properties and the withdrawal of exemptions in erstwhile tribal areas in phases. These steps reflect a broader move to expand the taxation base and increase compliance.
The breakup revealed that while Rs670 billion in total revenue measures are planned, Rs58 billion is allocated for relief to the salaried class, bringing the net impact to Rs623 billion. Of this, Rs281 billion will come from stricter taxation, and Rs389 billion from enforcement. The government hopes these actions will significantly generate revenue in the next fiscal year, while balancing relief with strong compliance frameworks.From the perspective of someone who’s monitored public pay structures and taxation policy shifts over the years, the federal government has proposed a 10% increase in salaries for employees, along with a pension hike ranging from 7.5% to 10%. While this move does offer slight comfort amid high inflation, the salaried class was hoping for more relief, especially from a budget designed under IMF influence. Unfortunately, those hopes appear dim, as the IMF has opposed restoring the tax-free income slab of Rs1.2 million annually.
Instead, it is expected that a minimum 1% income tax will apply even if an individual’s annual salary equals Rs1.2 million. The proposed tax-free slab will likely stay at Rs600,000, and other slabs may only see a 2.5% relief at most. For businesses, the corporate income tax rate remains fixed at 2.5%, offering predictability but little incentive. While these decisions align with revenue targets, they offer limited breathing room for both individuals and companies operating under ongoing financial stress.
