Federal Budget 2025–26 Pakistan

The Federal Budget 2025–2026 of Pakistan was presented in the National Assembly on June 10, 2025, outlining a Rs. 17.6 trillion plan focused on economic stability, fiscal reforms, and digital transformation.

Designed in consultation with the International Monetary Fund (IMF), this year’s budget aims to strengthen revenue generation while providing selective relief to middle and low-income groups. It marks a major step toward fiscal discipline and economic modernization.

Ambitious Economic Targets

The 2025–26 budget sets strong economic and fiscal goals to restore confidence in Pakistan’s financial future.

Growth Goal: Targets a 4.2% GDP growth for FY26, up from 2.7% last year, indicating a return to economic expansion.
Tax-to-GDP Ratio: Seeks to raise the tax-to-GDP ratio to 14%, reducing Pakistan’s dependency on external borrowing.
Revenue Ambition: The Federal Board of Revenue (FBR) has been assigned a record target of Rs. 14.13 trillion, marking a 9% increase from the previous year’s Rs. 12.9 trillion.
Non-Tax Revenue: Plans to generate Rs. 5.15 trillion through non-tax sources to enhance domestic fiscal capacity.

Tax Reforms to Fuel Progress

To widen the tax base and promote fairness, the government has introduced several major tax policy changes.

New Taxes Introduced: Over Rs. 623 billion in additional taxes have been imposed on sectors like digital transactions, agriculture, and freelancing, aiming to formalize Pakistan’s informal economy.
Crackdown on Non-Filers: Non-filers now face restrictions on vehicle and property purchases, as well as limited banking access, to discourage tax evasion.
E-Commerce Tax: A final withholding tax (0.25%–2%) is now applicable on digital and e-commerce transactions, collected by banks and courier companies.
Property Taxes:

• For filers, advance tax on property purchases has been reduced to 1.5%–2.5% (from 3%–4%).

• For non-filers, the rates now reach as high as 18.5% for purchases and 11.5% for sales.
  Capital Gains and Dividends: Taxes on shares, real estate, and mutual fund dividends have been raised, with debt-based funds now taxed at 15%–25%.

Relief for Salaried Pakistanis

The 2025–26 budget delivers targeted relief for salaried individuals and government employees.

Tax Reductions:

• 0% tax on annual income up to Rs. 600,000

• 1% tax on income from Rs. 600,001 to Rs. 1.2 million (down from 5%)

• 11% on Rs. 1.2 million to Rs. 2.2 million (down from 15%)

• 23% on Rs. 2.2 million to Rs. 3.2 million (down from 25%)

High-Income Surcharge: Reduced from 10% to 9% for individuals earning above Rs. 10 million annually.
Housing Incentive: Reinstates tax credit on home loan interest for properties up to 2,500 sq. ft. (houses) or 2,000 sq. ft. (flats), available once every 15 years.
Salary and Pension Increases:

• 10% salary increase for federal government employees.

• 7% pension increase for retired public servants.
  Teacher and Researcher Rebate: A 25% income tax rebate for full-time teachers and researchers has been restored, effective retroactively from July 1, 2022, until June 30, 2025.

Sectoral Investments and Fiscal Priorities

The budget focuses on key national priorities while maintaining fiscal control.

Defense Allocation: Rs. 2.55 trillion, up 20% from FY25, ensuring national security amid regional challenges.
Development Program: Rs. 1 trillion allocated under the Public Sector Development Program (PSDP) for infrastructure, housing, and job creation.
Debt Servicing: Rs. 8.2 trillion, or 47% of total expenditure, dedicated to interest payments, underlining the gravity of Pakistan’s debt obligations.
Austerity Measures: Rs. 1.3 trillion in expected savings from lower policy rates and expenditure cuts.

Embracing Digital and Economic Modernization

Digital transformation forms the backbone of this budget’s economic strategy.

AI-Powered Tax Monitoring: FBR will use artificial intelligence to track tax compliance, detect fraud, and improve audit efficiency.
Recognition of Digital Payments: Gifts, loans, and investments conducted digitally will be officially recognized for documentation and verification.
Cargo Tracking: A real-time cargo tracking system will monitor goods in transit to prevent tax evasion.
Technology and Economic Zones: Sales tax exemptions for Special Economic Zones (SEZs) and Special Technology Zones (STZs) extended until 2035 or for 10 years from commencement.

Sales Tax and Compliance Measures

Digital Commerce: Sales tax on online goods will now be collected directly by payment gateways and courier companies, closing e-commerce tax gaps.
Solar Panels: Removal of sales tax exemption on imported solar panels, aligning with energy sector reforms.
Tribal Areas: Gradual withdrawal of sales tax exemptions—10% in FY26 to reach 16% by FY29. Electricity remains exempt until June 30, 2026.
Imported Goods: Retail prices for imported items will be set at 130% of customs value to ensure accurate tax recovery.
Local Motorcars: Sales tax on cars up to 850cc increased from 12.5% to 18%.

Additional Tax and Compliance Measures

Pension Taxation: A new 5% tax on pensions, commutations, or annuities exceeding Rs. 10 million for taxpayers under 70 years.
Withholding Tax Increases:

• Service payments: raised to 15% (from 9%/11%)

• Profit on debt: increased to 20% (excluding government securities)
  Cash Transaction Limits: Businesses can now disallow 50% of expenses on cash sales over Rs. 200,000 and 10% of purchases from non-NTN holders, promoting documentation.
  Tribal Area Relief: Income tax exemptions for former FATA and PATA extended to June 30, 2026.
  Simplified Appeals: Taxpayers can now file appeals directly with the Appellate Tribunal, bypassing the Commissioner (Appeals) for faster resolutions.

Challenges and the Road Ahead

The Federal Budget 2025–26 walks a fine line between public relief and fiscal consolidation.
While the reduction in salary taxes and increases in government pay and pensions bring short-term comfort, the introduction of new taxes on digital services, utilities, and imports could offset these gains for many households.

The government’s focus on exports, energy reforms, and domestic manufacturing shows a commitment to long-term growth. However, inflation, debt servicing, and governance efficiency will determine the success of this Rs. 17.6 trillion plan.

Pakistan now stands at a turning point — balancing relief, reform, and resilience under a digital and fiscally disciplined framework.