Pakistan Finance Minister Muhammad Aurangzeb, on Tuesday officially introduced the federal budget 2025-26 in special session of National Assembly.
The special session of NA was presided over by Speaker Sardar Ayaz Sadiq.
Finance Minister Senator Muhammad Aurangzeb tabled the Finance Bill amid prayers for national peace and prosperity.
Addressing the House, Aurangzeb described the budget as a landmark effort at a time when the country is navigating complex challenges. “Just as we stood united to defend our sovereignty, we must now act with the same resolve to safeguard our economic independence,” he said.
He praised the civil and military leadership for their firm response to external threats, particularly highlighting Pakistan’s reaction to Indian hostilities. He claimed this “decisive counteraction” elevated the country’s standing in the global arena.
Economic Indicators Signal Positive Shift
Highlighting an economic shift, Aurangzeb announced that inflation has dropped dramatically to 4.7%, compared to a staggering 29.2% two years ago. He attributed this to tough reforms and increased economic discipline.
Remittances from overseas Pakistanis reached $31.2 billion and are projected to climb up to $38 billion by year-end. Foreign exchange reserves, he projected, will rise to $14 billion in the same period.
The Minister cited a surge in business confidence, validated by Pakistan’s upgraded credit rating from Fitch, moving from CCC+ to B-.
Modernizing Tax and Revenue Collection
Beginning July 1, taxpayers will experience a simplified filing system, with the current 800-field return form being replaced by a seven-point format aimed at small businesses.
With a tax gap of Rs5,500 billion labeled “unacceptable,” Aurangzeb announced several reforms. These include digital production monitoring across key industries and AI-powered systems to enhance tax compliance.
He disclosed that 390,000 non-filers have already been traced and Rs78.4 billion in extra revenue collected. Additionally, efforts to privatize three distribution companies are reportedly halfway complete.
Revamping Power Sector and Exploring Energy Reserves
The budget 2025-26 outlines a transition away from costly government-run power plants, projected to save Rs7 billion annually. Agreements with IPPs are set to save Rs3 trillion over time, while power losses have already been reduced by Rs140 billion.
In a boost to energy independence, the Minister announced multiple oil and gas discoveries, and investments worth $5 billion pledged by E&P companies.
Reko Diq Seen as Pillar of Long-Term Prosperity
The Reko Diq mining project is expected to generate $75 billion in cash flows over the next 37 years. Work is underway on connecting infrastructure linking the site to key ports.
Major Allocations and Development Focus
Total government expenditures are expected to touch Rs17,573 billion. The PSDP has been allocated Rs1,000 billion, with significant portions directed toward transport and dam projects.
Defense spending is pegged at Rs2,550 billion, pensions at Rs1,055 billion, and Rs716 billion will fund the Benazir Income Support Programme in Budget 2025-26.
Water Security and Climate Commitments
Amid regional water tensions, Pakistan aims to expand water storage by 10 million acre-feet and cut water wastage by a third. Rs133 billion is set aside for water development, with additional funding for Karachi’s bulk water projects and telemetry systems.
Education, Science, and Human Capital Development
Rs39.5 billion has been earmarked for higher education, and Rs4.8 billion allocated to science and technology schemes. Moreover, 300 agricultural graduates will soon travel to China for training.
IT and SME Sector Support
IT exports reached $3.1 billion in ten months, with the goal of touching $25 billion in five years. SME financing increased to Rs641 billion and is expected to hit Rs1,100 billion by 2028.
Diaspora Acknowledged with Special Measures
The government plans to honor top remittance contributors with civil awards. New judicial mechanisms are being created to assist overseas Pakistanis, including online case registration and educational quotas for their children.
Rural Empowerment and Agri-Initiatives
Small farmers will benefit from Rs100,000 collateral-free loans via digital wallets. A National Seed Development Authority is also being launched to promote better yields and agricultural innovation.
Macroeconomic Targets and Tax Adjustments
The budget sets a 4.2% GDP growth target, with inflation forecasted at 7.5%. A primary surplus of 2.4% and a fiscal deficit of 3.9% of GDP are anticipated.
FBR’s tax collection goal has been raised to Rs14,131 billion. Meanwhile, the tax-to-GDP ratio is expected to climb to 12.3%.
Tax System Overhaul
A new income tax classification will eliminate the filer/non-filer distinction. All major financial activities will now require a submitted wealth statement.
For salaried individuals:
- Annual income up to Rs1.2 million will face a 1% tax.
- Income between Rs2.2 million and Rs3.2 million will be taxed at 11%.
Imported solar panels, all vehicles, and e-commerce logistics providers will now bear an 18% sales tax.
Incentives to Retain Talent and Streamline Retirement
To curb brain drain, the surcharge on incomes exceeding Rs10 million will be reduced by 1%. Super tax on corporations is to be slashed by 0.5%.
Family pensions will be capped at 10 years, and retirees taking up employment must choose between pension or salary. Multiple pensions will no longer be allowed.
