The federal budget for the fiscal year 2025–26 is poised to be a reform-heavy, IMF-guided document designed to stabilize the economy while achieving a delicate balance between fiscal consolidation and targeted relief.
Finance Minister Muhammad Aurangzeb is set to present the budget in the National Assembly on June 10, assuming no further delays. Its presentation was initially scheduled for June 2 but was postponed following snags in talks with the IMF concerning tax relief measures.
Ahead of the budget, analysts at Topline Securities and Arif Habib Limited (AHL) project the government will maintain its consistent improvements in the primary balance, targeting a 1.6% share of GDP for the current year. The Federal Board of Revenue’s (FBR) collection is forecasted to reach Rs13.9-14.3 trillion, indicating a year-on-year growth of 16–18%, which would be the slowest rate in six years. This growth is anticipated to partly stem from an inflation rate of 7.7% and a Gross Domestic Product (GDP) expansion of approximately 3.6–4.0%, with the remainder driven by Rs500–600 billion in new tax measures.
Fiscal discipline will be reinforced through controversial measures such as a potential pension tax, General Sales Tax (GST) on petroleum products, and the removal of long-standing exemptions. Concurrently, relief for the salaried class, housing finance, and selected industry sectors is expected. The IMF’s influence is clear: no amnesties, a strong crackdown on non-filers, and an expansion of the tax base across all sectors. The budget, while expected to be neutral for equities in the short term, is projected to boost market confidence in the medium term.
Key Budget Expectations for FY26:
Macroeconomic Targets:
- GDP Growth: 3.6-4.0%
- Inflation (avg.): 5.77%
- Primary surplus: 1.4-1.6% of GDP
- Fiscal deficit: Rs6.5 trillion or 5.1% of GDP
Revenue Measures:
- GST on petroleum products (3-5%): Expected to increase petrol prices by Rs8-13/litre.
- Higher Petroleum Development Levy (PDL): Targeted at Rs1.3-1.4 trillion, an increase of Rs5/litre.
- Pension tax: Proposed 2.5-5% tax on pensions exceeding Rs400,000/month.
- Tax on freelancers, vloggers, social media income: 3.5% tax, potentially generating Rs52.5 billion.
- Federal Excise Duty (FED) increases:
- Cigarettes: Increase expected due to WHO pressure.
- Sugary drinks: Proposed increase from 20% to 40%.
- Ultra-processed food: 5% FED expected on 50+ products.
- Fertilizer & pesticides: Additional 5% FED.
- FATA/PATA Exemption Removal: Removal of sales tax exemptions.
- Retailer Tax: Rs295 billion collection target set by IMF.
Relief Measures:
- Salaried class: Increase in exemption threshold from Rs600,000 to Rs800,000; possible 2.5% tax rate cut across brackets.
- Minimum wage and BISP adjustments: Likely to be indexed for inflation.
- Housing finance subsidy: Loans for 200,000 homes under interest subsidy.
Sector-wise Expectations:
- Oil and Gas/OMCs/Refineries: Expansion of PDL on FO and introduction of carbon tax. GST of 3-5% on petroleum products. Additional levies on coal and gas.
- Fertilizer: FED increase from 5% to 10%, raising urea prices by Rs200-225/bag. 5% sales tax on pesticides.
- Technology and IT: Likely continuation of Final Tax Regime at 0.25%. No tax harmonization for salaried vs. freelance IT workers.
- Cement: Public Sector Development Programme (PSDP) allocation of Rs900-950 billion expected. Housing finance subsidy to boost cement demand by 1.5-2.0 million tons.
- Steel: FATA/PATA tax exemptions to be phased out.
- Autos: Proposal to allow import of used cars up to five years old. Gradual cut in tariffs on imported vehicles.
- Stock Market: No changes expected in CGT on stocks. Pakistan Stock Exchange (PSX) proposals on bonus shares tax rollback and inter-corporate dividend exemption may not be accepted.
As the Shehbaz Sharif-led government prepares to unveil the Finance Bill for 2025-26, all eyes are on how it navigates the tightrope between IMF conditions and local expectations. With a focus on fiscal consolidation, broadening the tax net, and providing limited but strategic relief for the salaried and business classes, this budget could significantly define Pakistan’s macroeconomic trajectory ahead of the next IMF review in September. While industries brace for tighter regulations and taxes, the emphasis on stability, reform, and debt control marks a critical pivot in Pakistan’s economic policymaking.
