Islamabad:
Finance Minister Muhammad Aurangzeb on Tuesday revealed an RS17.6 trillion budget that tried to limit tax expansion, but taxation measures were clearly contradictory that on the one hand would promote cash economy and fossil fuels, but also deter these on the other.
The government of Prime Minister Shehbaz Sharif also introduced new taxes on the digital economy, retirees and pure energy. Some of these measures were contradictory to the declared policy of deterring the cash economy. However, Finance Bill 2025-26 also provided incentives for pure energy by taxing internal combustion motor cars and fossil fuels.
Despite high poverty and high unemployment, the government suggested to drastically reduce import duties from raw materials to finished goods, which the industry feared would lead to de -industrialization of Pakistan.
The economy is opened to foreign competition by lowering protection available to local industries. The Minister of Finance said the maximum custom customs plate has been reduced to 15%, while a five -year plan had been given to abolish further and regulatory tasks.
The inaudible budget speech, such as Aurangzeb, which was delivered in the middle of the bully opposition, clearly lacked in giving any political direction. While the Finance Division tried to meet the International Monetary Funds (IMF) requirements to meet tax targets, the Federal Board of Revenue (FBR) was unable to come up with the clear taxation policy.
Financial proposal 2025-26 seemed to be the most confusing document, such as any government produced this year. It was about going after the youth’s economy and business practice from the 21st century.
The government has proposed 18% VAT when importing solar panels, but the introduced RS2.5 per year. Liter of carbon tax using gasoline, diesel and oven oil, which showed the lack of clarity from the government.
Likewise, it increased the tax on cash withdrawals from banks from 0.6% to 0.8% to deter cash economy and generate easier money, but it also imposed a new tax on digital service platforms in the range of 0.25% to 5%.
The government also increased VAT of 850 cc cars in the middle class from 12.5% to 18%. A new tax has been introduced to retirees, where the monthly pension of RS833,000 has been taxed at a rate of 5%.
FBR was missing again by deciding whether the government wanted to promote digital economy or cash economy. FBR chairman Rashid Langrial canceled the media briefing on Finance Bill 2025-26, which meant compromising transparency and people’s right to know about the measures affecting their futures.
In his budget speech, the Finance Minister surprisingly said that “rapid growth in online business and digital marketplaces created problems for traditional companies, so it is proposed that e-commerce platforms, cure and logistical services to be taxed at a rate of 18%.
A tax officer told The Express Pakinomist that FBR would earn RS64 billion by taxing the digital economy. Financial proposal 2025-26 showed that the economic leaders preferred the 19th century economy by giving some relief in the purchase of properties, but taxed the digital platforms of the 21st century.
It has also proposed to ban financial transactions for unjustified persons who include the ban on the purchase of properties, cars and investments in securities of persons whose assets do not match these purchases.
Through financial bills, the government also changed a number of other non-tax laws in addition to introducing two new legislation, the Digital Presence Act 2025 and the new energy vehicle adoption of Levy Act, 2025. There may be constitutional issues whether the new laws can be introduced through the financial bill.
The government has proposed a total of RS415 billion values of tax measures in the budget, the senior tax officer said. These include RS292 billion.
Finance Minister Aurangzeb said the IMF had also accepted RS389 billion worth enforcement measures. But he admitted that FBR’s tax-to-BNP ratio would remain below the IMF target of 10.6% in this financial year.
The government has proposed these measures to extract a minimum RS2.2 trillion from the weak economy in an attempt to achieve the next financial year’s RS14.13 trillion tax targets. Petroleum and carbon tax targets are set to RS1.47 trillion for the next financial year at the back of the RS80 per year. Liter Levy.
The Minister of Finance also announced some respite for the lower to the middle -income group Employees. He said the tax rate on the annual income of RS1.2 million.
At the cabinet meeting in the past, there was an exchange of words between the Minister of Finance and the Minister of Communications Abdul Alaeem Khan, who had asked the Prime Minister to further increase wages for government employees.
On the declared Finance Minister, this would require additional resources, which caused Khan to say that he was not a street vendor who did not know this required additional money, a member of the cabinet said on condition of anonymity.
The Prime Minister decided that the tax rate for the lower middle -income group should be increased from the proposed 1% to 2.5%, the sources said to give a 10% increase in wages.
On the annual income of up to RS2.2 million. If the government has proposed to reduce the rate from 15% to 11% when the annual income of RS3.2 million, the rate is reduced from 25% to 23%. There is no relief to the annual salary income income of over RS4.1 million. However, the fine on the highest income income is reduced from 10% to only 9%, which the finance minister called was necessary to stop “brain drains”.
Advance tax on the sale or transfer of real estate has been increased from 3% to 4.5% on the value of RS50 million property. The rate is linked to 5% from 3% on RS100 million property, while increasing further to 5.5% from 4% if the value exceeds RS100 million.
However, when purchasing the property, the rate is reduced from 3% to 1.5% from 3.5% to 2% and from 4% to 2.5%, depending on the property. The financial transactions of the unjustified persons have been banned if the value of the new purchases is more than 130% of the value of the total assets.
Tight fiscal path
To stay in the IMF program, the government has proposed a financially tight budget, although it also made room for political expenses. The government has proposed a budget deficit of RS6.5 trillion or 5% of the size of the economy.
The total size of the budget is RS17.6 trillion, which is 7.3% smaller than this year’s original budget due to relatively lower allocations for interest payments in the financial year 2025-26.
The proposed budget deficit is 1.8% of GDP or RS2.4 trillion less than the original estimates of this financial year. The deficit can still appear large in absolute terms. But it is for the first time lower than this year’s gorge, both in terms of the size of the economy and in absolute numbers.
The defense budget has been proposed for RS2.55 trillion, which is 21% or RS436 billion higher than this financial year due to war with India. The development program with armed forces has been marginally increased to RS300 billion, which is far lower than what the military had required.
The government is projecting gross federal revenue for record RS19.3 trillion for the next financial year, higher with RS1.5 trillion.
The gross income is based on FBR’s tax target of RS14.13 trillion and RS5.2 trillion non-tax revenue. The non -tax income is mainly from the petroleum tax, where the government wants to collect almost RS1.5 trillion and RS2.4 trillion profits from the State Bank of Pakistan.
Out of the RS14.1 trillion FBR tax collections, the provinces of RS8.2 trillion get their shares in federal taxes under the National Finance Commission (NFC) Award.
This leaves the federal government with RS11 trillion net income for the next financial year, which will not be sufficient to accommodate interest payments and include all defense expenses. The government will borrow RS6.5 trillion in the next financial year to finance RS17.6 trillion overall federal budget.
Under the IMF program, the four provinces are also required to save RS1.46 trillion from their revenue as cash surplus to reduce the national budget deficit to RS5 trillion or 3.9% of GDP. These are steeper fiscal consolidation and would require all five governments to meet all their revenue and expenses related goals.
Interest payments will eat 47% of the budget, and the federal government’s net income – after paying the provincial shares – will be RS2.8 trillion more than interest payments. The next year’s interest payments are estimated at RS8.2 trillion, which is lower than this fiscal year due to significant reduction in interest rates.
The Minister of Finance announced an RS716 billion BISP program aimed at expanding the grid to over 10 million recipients and adding more children to the conditional cash transfer programs.
