Pakistan announces Rs17.573 trillion budget for FY2025-26

ISLAMABAD: ISLAMABAD: Finance Minister Muhammad Aurangzeb presented the Rs 17.573 trillion Budget for 2025-26 in the National Assembly, ARY News reported.

Addressing the House, the finance minister congratulated Pakistan’s military and political leadership, highlighting the country’s exceptional success against its enemies. “Our armed forces displayed extraordinary capability and responded to threats with full strength,” he said.

He stated this was the coalition government’s second budget and highlighted the government’s success in achieving a primary surplus of 2.4 percent of GDP. Inflation, he noted, had also significantly decreased to 4.7 percent due to timely policy measures.

Opposition protests during Budget 2025-26 session

The session was marred by loud protests from opposition parties, including PTI and members of the Sunni Ittehad Council. They rejected what they called an IMF-backed budget and accused the government of lacking the mandate to present it.

Chaos ensued in the House as opposition lawmakers tore up budget documents and shouted slogans. During the disturbance, PML-N legislators gathered near Prime Minister Shehbaz Sharif, who was seen meeting with several party members.

Economic indicators and trade reform

The finance minister reported that the current account had swung from a deficit of $1.7 billion in the previous fiscal year to a surplus of $1.5 billion. Customs reform was another major focus of the budget.

Additional customs duty will be phased out over four years, and regulatory duties will be eliminated within five years. The government also plans to abolish the Fifth Schedule of the Customs Act 1969 over the same timeframe.

Moreover, the number of customs duty slabs will be reduced to four, and the maximum customs duty rate will be brought down from 20 percent to 15 percent. These measures aim to simplify the tax system and boost the competitiveness of sectors such as IT and pharmaceuticals.

Strategic infrastructure and investment initiatives

The government announced its decision to expand water storage infrastructure on an emergency basis. Preparations for launching Panda Bonds have been completed, opening Pakistan to China’s capital market to attract investment.

In the transport sector, Rs 100 billion has been allocated for the 813km long N-25 highway connecting Karachi to Chaman.

An additional Rs 15 billion has been earmarked for the motorway linking Karachi Port to Hyderabad and Sukkur. Another Rs 19 billion has been allocated for upgrading the Gadani Ship-Breaking Yard.

State-owned enterprises and privatization drive

The classification of all state-owned enterprises under SOE reforms has been finalized. Inefficient SOEs have been costing the government over Rs 800 billion annually, and reforms aim to reduce these losses.

Privatization of Pakistan International Airlines (PIA) and the Roosevelt Hotel is scheduled for the next fiscal year, and privatization efforts for power distribution companies (DISCOs) and generation companies (GENCOs) will continue.

The Cabinet has approved downsizing staff in 10 federal ministries, with a total of 45 government entities marked for privatization or closure.

Taxation and revenue measures

New taxation measures include a 5 percent income tax on annual pensions exceeding one crore rupees. The tax on cash withdrawals by non-filers has been increased from 0.6 percent to 1 percent.

Moreover, the government has decided to end the distinction between filers and non-filers. Only individuals who submit a wealth statement will be allowed to carry out financial transactions, and non-filers will no longer be permitted to purchase property or vehicles.

An 18 percent sales tax will now be imposed on the import of solar panels to promote local manufacturing.

Revised income tax slabs for salaried individuals

The government has provided significant relief to the salaried class in Budget 2025–26. All income tax slabs have been revised downward. For annual incomes between Rs 600,000 and Rs 1.2 million, the tax rate has been cut from 5 percent to 2.5 percent.

For a salary of Rs 1.2 million per year, tax liability has been reduced from Rs 30,000 to Rs 6,000. Those earning up to Rs 2.2 million annually will now pay 11 percent instead of 15 percent.

For incomes between Rs 2.2 million and Rs 3.2 million, the tax rate has been lowered from 25 percent to 23 percent. Other income brackets include a 1 percent tax on Rs 1.2 million annually, 12.5 percent on Rs 1.83 lakh per month, 22.5 percent on Rs 2.67 lakh, and 27.5 percent on Rs 3.33 lakh per month.

Sector-specific allocations and reforms

In the energy sector, Rs 90 billion has been allocated for 47 development schemes. Specific allocations include Rs 1.8 billion for MEPCO, Rs 1.9 billion for HESCO, and Rs 2.4 billion for PESCO.

To ease the housing burden, the government has eliminated Federal Excise Duty on the transfer of commercial properties, plots, and houses.

Mortgage conditions for low-cost housing will also be eased, and a new tax credit will be introduced for homes up to 10 marla and flats of up to 2,000 square feet.

In Islamabad, stamp duty on property purchases has been reduced from 4 percent to 1 percent. The withholding tax on property purchases has been reduced from 4 percent to 2.5 percent, with a proposal to lower it further from 3 percent to 1.5 percent.

Interest income and savings adjustments

Tax on income from interest has been increased from 15 percent to 20 percent. However, this increase will not apply to income from National Savings Schemes, thus preserving benefits for small savers and pensioners.

Social welfare and development funding

The government has allocated Rs 716 billion for the Benazir Income Support Programme.

Rs 140 billion has been reserved for expenditures in Azad Jammu and Kashmir, while Rs 80 billion each has been allocated for the merged districts of Khyber Pakhtunkhwa and Gilgit-Baltistan. Balochistan has been allotted Rs 18 billion for its current expenditures.

Support for SMEs and IT sector growth

A major target of the government is to increase IT exports to $25 billion over the next five years. To support this, Rs 100 billion will be provided in financing to small and medium enterprises (SMEs) by 2028. Easy access to loans under relaxed conditions will be introduced to encourage small-scale industries.

Housing and support for low-income groups

Low-income groups will be offered affordable loans for constructing or purchasing homes. The State Bank of Pakistan is expected to roll out a special housing scheme aimed at helping economically vulnerable populations gain access to housing.

Judicial reforms for overseas Pakistanis

The finance minister announced that special courts would be established for overseas Pakistanis. An online system for case registration and evidence submission will be introduced, aimed at making the legal process simpler and faster for Pakistanis living abroad.