ISLAMABAD:
The National Assembly on Tuesday passed the expansive Rs18.8 trillion federal budget.
The House of Commons also approved the Finance Bill 2026 with several amendments empowering the government to implement over Rs1 trillion in policy and enforcement measures in a bid to meet the ambitious Rs15.264 trillion revenue target.
The budget comes into force on 1 July. It is the third budget of Prime Minister Shehbaz Sharif’s current term and his fifth budget in a row since the ouster of former Prime Minister Imran Khan in 2022.
The National Assembly also approved last-minute changes to tax laws, including a reduction in the tax burden on imported mobile phones up to Rs55,600 or just $200 in value. The combined tax due to mobile duty and income tax has been reduced by Rs1,230 or 86%. The revised tax rates are now Rs300 per handset.
The prices of some packaged products are expected to rise after the government decided to charge VAT on their printed values. This would generate an additional Rs91 billion in revenue. Additional taxes of Rs 20 billion have also been imposed on high-end vehicles.
The expansive budget of Rs 18.8 trillion. is 20% or 3.1 trillion Rs. higher than the revised outlay for the outgoing financial year. The defense budget has been approved at Rs3 trillion, including at least Rs335 billion of provincial contributions. Over Rs 8 trillion has been approved for interest payments as the finance ministry’s debt management strategy also comes under scrutiny due to a few domestic and foreign debt transactions.
The National Assembly also approved a budget subsidy of Rs 252 billion to curb the circular debt, reflecting badly on the performance of the Power Division, which has not been able to bring the debt flow to zero.
The House also approved Rs8 billion subsidy to incentivize the use of electric vehicles, whereas the government has targeted to raise Rs70 billion through climate subsidy levy and internal combustion engine tax to promote cleaner fuel vehicles.
The National Assembly approved the changes to Pakistan’s four tax laws, which would result in imposing just over Rs1 trillion in additional measures and providing Rs360 billion in relief.
The real estate sector has been given a relief of Rs 115 billion. out of its slightly over Rs200 billion tax contribution. Compared to this, the salaried class has been extended Rs52 billion relief out of Rs630 billion annual contribution in the last financial year.
Rs18.8 trillion will be financed by taking Rs7 trillion in new loans. This is in addition to Rs1.035 trillion in cash grants from the province to fund defense and mega dams, mainly the Diamer Basha, Mohmand and Dasu hydropower projects. But the provincial grants are subject to the Federal Board of Revenue’s (FBR) ability to collect the Rs15.264 trillion target. In the event of any slippage, the subsidy amount will be automatically reduced.
Finance Minister Muhammad Aurangzeb said earlier this month that the provincial shares would be determined based on Rs13.35 trillion in taxes and the additional amount of Rs1.9 trillion would go to the federal government, including the Rs1.035 trillion provincial share.
In the last two fiscal years, the FBR missed its tax targets by wide margins of Rs 2.3 trillion. But this time, if the FBR misses the targets, Pakistan will also have to seek a waiver from the IMF and its plans to speed up the construction of mega dams will also be affected.
The federal budget deficit target is set at 4.9% of GDP or Rs7 trillion, which is significantly higher than this fiscal year. The federal deficit is Rs1.9 trillion or 36% higher than the outgoing fiscal year, showing that the government is no longer adopting the fiscal consolidation path. The oil and carbon tax targets are set at Rs1.748 trillion for the next financial year on the basis of Rs80 per liter tax.
The National Assembly has approved giving income tax exemptions to nine more entities, including the Quaid-e-Azam Mazar income. It has approved adding the Make-a-Wish Foundation, provincial employee social security institutions and Workers Welfare Fund organizations to the list of exempt entities.
The House approved allowing traders to exit the recently announced flat income tax scheme from tax year 2027. The government has provided an optional scheme for traders that allows them to pay only 1% of sales in income tax and a minimum of Rs 25,000. annually in exchange for exemption from audit and becoming part of the digital economy.
The National Assembly approved reducing the maximum import duties on cars from 156% to 74% for vehicles up to 2,000cc, making these cars cheaper. The proposal is in accordance with the national tariff policy.
The Assembly also approved changes in import tariffs, facilitating trade liberalization during the second year by reducing the simple average import tariffs from 16.56% to 13.8% during the new fiscal year.
The maximum rate on vehicles above 1,800 cc has been reduced from the existing 156% to 74%. Imported cars, SUVs and other vehicles with an engine capacity of 2,000 cc and above are subject to an 86% federal excise tax. A tax of 92% is also imposed on vehicles with an engine capacity of over 3,000 cc.
For vehicles in the 1,500cc to 1,800cc category, the combined rate has been reduced from 91% to 57%. Import duties on 1,000cc to 1,500cc vehicles have been reduced from 76% to 52%.
For 850cc to 1,000cc vehicles, the maximum rate has been set at 47% from 71%, and the maximum rate for vehicles up to 850cc, cycles and vehicle bodies has been cut from 66% to 42%. For the spare parts sector, the maximum tariff has been reduced from 61% to 45%, including 25% duty.
The Minister of Finance proposed four further changes to the tax laws, which the National Assembly also approved. The House reduced the income tax rate on up to $200 handsets from Rs930 to Rs100.
It also approved reducing the handset tax from Rs600 to Rs200 for the $200 handset. The National Assembly also allowed the people to pay heavy taxes on mobile phones in installments, but the government did not reduce taxes on handsets worth over $200.
The National Assembly approved lowering the income tax at the import stage on glycerol, crude oil; glycerol water and glycerol from 5.5% to 2%. It also allowed exemption from the 20% federal excise tax on mineral water, carbonated water, hydration drinks or electrolyte drinks specifically formulated to support hydration electrolyte replenishment that contain artificial sweetener or sugar or both not exceeding 5g/100ml.
Under the chairmanship of Syed Naveed Qamar, the National Assembly’s Standing Committee on Finance had also recommended several changes in the tax laws, which the lower house approved.
