ISLAMABAD:
The Senate on Thursday approved a series of budget recommendations for 2026-27, including a 15% increase in state employee pay, restoration of frozen medical benefits for employees and retirees, higher taxes on luxury assets and large motor vehicles, and permission for foreign visitors and residents to bring alcohol into the country for personal use.
The recommendations were passed during a Senate session presided over by Chairman Senate Yousaf Raza Gillani after Standing Committee on Finance Saleem Mandviwalla tabled the committee’s report on the Finance Bill.
Among the most important recommendations, the Senate proposed increasing the salaries of federal government employees by 15% and restoring frozen medical benefits for both employees and retirees. It also recommended reducing tax rates for wage earners and low-income earners to provide relief amid rising living costs.
The House proposed a reduction in general sales tax (GST) on food, medicine, educational materials and agricultural materials, while it recommended allocation of funds to reduce electricity prices. In a notable recommendation, the Senate proposed allowing foreign residents and visitors to bring alcohol for their personal consumption.
The recommendations also called for zero-rating taxes and duties on fertilizers, seeds, pesticides, diesel and farm machinery to support the agriculture sector. The Senate proposed further increasing appropriations for public hospitals, primary health care, higher education funds and scholarship programs.
The report urged the government to reduce non-development spending, simplify the tax regime for small and medium-sized enterprises, review proposed tax measures on essential commodities and the wage earner class, and broaden the overall tax base.
The Senate also recommended withdrawal of additional levies and taxes imposed via electricity bills on households and low-income consumers. It proposed to extend tax exemptions for IT exporters and freelancers for another 10 years.
To expand revenue generation, the recommendations included increased taxes on vehicles with engine capacity above 3,000 cc, luxury properties and non-productive assets. The Senate also called for reducing indirect taxes on essential goods and establishing a mechanism to transfer development funds to elected local governments.
The House further recommended comprehensive taxation and documentation measures for luxury retail businesses, real estate transactions and luxury transactions by non-filers.
On property taxation, the Senate proposed that lower property tax rates should remain available only to first-time home buyers, while property taxes should continue to apply to investors buying second homes or holding land for investment purposes.
Concluding the budget debate, Finance Minister Muhammad Aurangzeb said the government had not been able to achieve its GDP growth target due to global and regional economic conditions. However, he said reform measures across various sectors had continued.
The minister told the house that the advance tax on the export sector had been abolished, various markup rates had been reduced and tax breaks had been given to the construction sector.
He said no new taxes had been imposed on the IT sector while measures were taken to create a better ecosystem and training opportunities for freelancers.
Aurangzeb said the government had provided relief to small farmers through easier access to loans, allocated Rs10 billion under the youth loan scheme and abolished taxes on import of farm machinery.
He said a simplified scheme was introduced to bring small shopkeepers into the tax net. At the same time, the Federal Board of Revenue (FBR) was digitized to reduce human intervention and improve institutional efficiency.
The finance minister said the government was taking measures to move the economy towards self-reliance and had demonstrated its ability to cope with flood-related challenges through its own resources.
Speaking on the occasion, Mandviwalla said that this was the eighth consecutive budget for which he presented the Senate recommendations as chairman of the finance committee.
He said the budget had been presented in a war-like situation and noted that relief had been given to wage earners through reductions in income tax slabs. He also called for further measures to promote solar energy and suggested abolishing taxes on credit and debit cards.
Mandviwalla said the Finance Committee had made 108 recommendations on the budget, while the Senate Standing Committee on Planning had made 15 recommendations, bringing the total number of Senate recommendations to 123.
Noting that funding for health and education remained very low, he said additional burdens had been placed on existing taxpayers. He reiterated the committee’s recommendations for at least a 15% increase in civil servants’ salaries, lower taxes on food and agriculture, and tax exemptions for books, notebooks and pencils.
He also said that climate-related taxes should be used exclusively for environmental improvement measures.
Senate Chairman Gillani said the House had held detailed discussions on the budget for four consecutive days, with 56 senators participating in the debate. He said the finance and planning committees had been working continuously to prepare 123 recommendations on the budget, which would now be sent to the National Assembly for consideration.
After the conclusion of the negotiations, the Senate meeting was adjourned indefinitely.
