Federal Budget 2025-26: Key Highlights

Pakistan’s Federal Budget 2025 – 2026 was presented in the National Assembly on June 10, 2025. A Rs. 17.6 trillion blueprint to spark economic growth, streamline taxes, and embrace digital transformation.

It was designed with IMF guidelines in mind, this budget offers relief to everyday Pakistanis while pushing for fiscal discipline and modernization.

Let’s dive into the key highlights that will shape the nation’s economic future.

Ambitious Economic Targets

The budget sets a confident tone for Pakistan’s economy:

• Growth Goal:Targets a robust 4.2% GDP growth, up from 2.7% in FY25, signaling a strong recovery trajectory.
• Tax-to-GDP Ratio:Aims to boost the tax-to-GDP ratio to 14% from 10%, reducing reliance on foreign loans.
• Revenue Ambition:The Federal Board of Revenue (FBR) is tasked with collecting Rs. 14.13 trillion, a 9% jump from FY25’s Rs. 12.9 trillion.
• Non-Tax Revenue:Plans to raise Rs. 5.15 trillion to strengthen domestic resources.

Tax Reforms to Fuel Progress

To build a fairer and broader tax system, the budget introduces significant changes:

• New Taxes:Over Rs. 623 billion in new taxes target digital transactions, agriculture, and freelancing to bring informal sectors into the tax net.
• Cracking Down on Non-Filers:Non-filers face restrictions on buying vehicles, properties, or securities, and limited bank account access to curb tax evasion.
• E-Commerce Tax:A final withholding tax (0.25%–2%) on digital transactions via e-commerce platforms, with banks and couriers collecting taxes to formalize online trade.
• Property Taxes:Advance tax on property purchases drops to 1.5%–2.5% for filers (from 3%–4%), but rises to 4.5%–5.5% for sales. Non-filers face steep rates of up to 18.5% for purchases and 11.5% for sales.
• Capital Gains and Dividends:Higher taxes on shares, real estate gains, and mutual fund dividends (15% to 25% for debt-based funds) to boost revenue.

Relief for Salaried Pakistanis

The budget brings welcome relief for the middle class:

• Tax Cuts:No tax on incomes up to Rs. 600,000; 1% tax for Rs. 600,001–1.2 million (down from 5%); 11% for Rs. 1.2–2.2 million (from 15%); and 23% for Rs. 2.2–3.2 million (from 25%).
• High-Income Surcharge:Reduced from 10% to 9% for salaries above Rs. 10 million.
• Housing Support:Reintroduces a tax credit on interest for home loans (up to 2,500 sq. ft. houses or 2,000 sq. ft. flats), claimable once every 15 years.
• Salary and Pension Boost:10% salary hike for government employees and 7% pension increase to ease inflation pressures.
• Teacher/Researcher Rebate:Restores a 25% tax rebate for full-time teachers and researchers until June 30, 2025, retroactive from July 1, 2022.

Sectoral Investments and Fiscal Priorities

The budget balances critical investments with fiscal responsibility:

• Defense Allocation:Rs. 2.55 trillion, a 20% increase due to regional tensions, ensuring national security.
• Development Push:Rs. 1 trillion for the Public Sector Development Program to drive infrastructure and job creation.
• Debt Servicing:Rs. 8.2 trillion (47% of expenditure) for interest payments, reflecting debt challenges.
• Austerity Savings:Expects Rs. 1,300 billion in savings from lower State Bank policy rates.

Embracing Digital and Economic Modernization

The budget leans heavily into technology and innovation:

• AI-Powered Tax Tracking:Uses AI to improve tax collection and transparency.
• Digital Payments:Recognizes digital transactions for gifts, loans, and investments, aligning with Pakistan’s digitization goals.
• Cargo Tracking System:Real-time monitoring of goods in transit to prevent tax evasion.
• SEZ/STZ Exemptions:Sales tax exemptions for Special Economic and Technology Zones capped until 2035 or 10 years.

Sales Tax and Compliance Measures

Key sales tax changes aim to modernize and enforce compliance:

• Digital Commerce:Sales tax on digitally ordered goods collected by payment gateways and couriers, reducing tax leakage in e-commerce.
• Solar Panels:Withdraws sales tax exemptions on solar panel imports and supplies.
• Tribal Areas:Phases out sales tax exemptions, increasing from 10% (2025-26) to 16% (2028-29), though electricity exemptions extend to June 30, 2026.
• Imported Goods:Retail price for imported goods set at 130% of customs value for higher tax collection.
• Motorcars:Sales tax on locally made cars up to 850cc rises from 12.5% to 18%.

Additional Tax and Compliance Measures

• Pension Taxation:Taxes pensions, commutations, or annuities above Rs. 10 million for those under 70 at 5%.
• Withholding Tax Hikes:Service payments rise to 15% (from 9%/11%) and profit on debt to 20% (from 15%, except government securities).
• Cash Transactions:Disallows 50% of expenses for cash sales over Rs. 200,000 and 10% of purchases from non-NTN holders to promote transparency.
• Tribal Area Support:Extends income tax exemptions for erstwhile tribal areas to June 30, 2026.
• Simplified Appeals:Allows taxpayers to bypass Commissioner (Appeals) and file directly with the Appellate Tribunal.

Challenges and the Road Ahead

This budget is a rough pathway between immediate relief and long-term fiscal health. While tax cuts and salary hikes ease burdens for the middle class, new taxes on fuel, utilities, and digital platforms may increase burden on households.

The push for export-led growth, tariff reforms, and job creation sets the stage for a competitive economy, but inflation and debt remain hurdles.

With Rs. 17.6 trillion on the line, this budget is a pivotal step toward a modern, resilient Pakistan. Stay tuned as these reforms unfold!