On June 10, 2025, the federal cabinet of Pakistan, led by Prime Minister Shehbaz Sharif, approved the Budget for 2025-26. Finance Minister Muhammad Aurangzeb presented the budget of Rs17.8 trillion to the National Assembly, balancing reforms mandated by the IMF with initiatives focused on growth.
We have outlined the key proposals, from tax reforms to infrastructure investments, shaping Pakistan’s fiscal year 2025-26.
The government has proposed a 10% salary increase for public sector employees to alleviate inflation. Additionally, pensions are set to rise by 7.5% to 10%, supporting retirees amidst rising costs..
Taxation Reforms
Guided by the IMF, the budget introduces significant tax reforms to boost revenue:
- Salaried individuals: A 1% income tax on annual salaries of Rs1.2 million, with the tax-free slab unchanged at Rs600,000. A 2.5% relief is proposed for all tax slabs.
- Corporate tax: Fixed at 2.5% to encourage business compliance.
- Non-filers: Tougher penalties include bans on property and vehicle purchases, mutual fund and stock market investments, and non-pilgrimage foreign travel. A Rs600 deduction applies to cash withdrawals over Rs50,000.
These measures aim to curb tax evasion, with federal revenue projected at Rs19.3 trillion.
Austerity Measures
IMF-driven austerity focuses on fiscal discipline:
- Ban on new vehicle purchases for federal ministries.
- Cap on government sector utility bills.
- Restrictions on supplementary grants, except for natural disasters.
Debt servicing allocates Rs7,503 billion for domestic debt and Rs1,119 billion for foreign debt.
Welfare and Development
The budget emphasises social welfare and regional growth:
- Stipends: Quarterly stipends will rise above Rs 13,500, reaching Rs 14,500 by January 2026.
- Provincial transfers: Rs8,107 billion (57.5% of FBR taxes) allocated to provinces via the NFC Award.
- Current account deficit: Projected at 0.5% of GDP (~$2.1 billion).
Trade and External Sector
Ambitious trade targets aim to drive economic growth:
- Exports: Goods ($35.3 billion) and services ($9.6 billion), totalling $44.9 billion.
- Imports: Goods ($65.2 billion) and services ($14 billion), totalling $79.2 billion.
- Remittances: Targeted at $39.4 billion.
Education, Industry, and Infrastructure
Investments focus on long-term development:
- Industry: Rs250 million for 1,000 industrial stitching units.
- Education: New Laptop Scheme and Pak-Bangladesh Friendship Scholarship Program.
- Infrastructure: Power upgrades in 15,352 villages, 2,800 MW added capacity (including 2,633 MW solar), and focus on ML-1 and Karachi Circular Railway projects.
- Regional growth: Infrastructure packages for AJK, Gilgit-Baltistan, and merged districts.
Pakistan’s Budget for 2025-26, presented by Finance Minister Muhammad Aurangzeb, combines fiscal discipline with growth initiatives.
Read: Pakistan Economic Survey 2024–25: 2.68% GDP Growth, Agriculture Faces Challenges
The proposed tax reforms aim to increase revenue, while welfare, trade, and infrastructure investments seek to stabilise and expand the economy. These proposals will significantly influence Pakistan’s economic direction as discussions will be held in the National Assembly.
