Pakistan’s federal budget-2025-26 at a glance

ISLAMABAD: The federal government on Tuesday presented the overall federal budget for the upcoming fiscal year 2025-26, amounting to Rs17,573 billion with a deficit of Rs1,501 billion.

The budget, presented in the National Assembly by Finance Minister Muhammad Aurangzeb amidst the uproar of opposition members, has proposed a 10 per cent increase in government employees’ salaries and a 7 per cent increase in pensions. It has also recommended significant reductions in income tax rates across all income slabs for salaried employees.

The budget had proposed a 30 per cent disparity allowance for employees from Grade-1 to Grade-16.

The budget has proposed the reduction in income tax rate from 5 per cent to 2.5 per cent for salaried employees earning between Rs600,000 and Rs1.2 million annually.

Similarly, the budget has envisaged reduction in the income tax rate from 15 per cent to 11 per cent for employees earning up to Rs2.2 million annually. It has proposed to lower the tax rate from 25 per cent to 23 per cent for employees earning up to Rs3.2 million annually.

In the budget, the total expenditure for the upcoming fiscal year has been estimated at Rs17,573 billion. The total gross revenue target has been proposed at Rs19,298 billion, with a net revenue target of Rs11,072 billion.

The Federal Board of Revenue’s tax collection target has been set at Rs14,131 billion, with non-tax revenue estimated at Rs5,147 billion.

Similarly, Rs87 billion has been proposed for the privatisation of institutions in the next fiscal year.

In the budget, an allocation of Rs2,550 billion has been proposed for defence, which is 20 per cent higher than the last year’s allocation.

In the budget, current expenditures have been projected at Rs16,286 billion, while Rs8,207 billion have been allocated for debt servicing.

The government has proposed Rs1,055 billion for pension payments. It has envisaged Rs1,928 billion for grants and transfers to provinces, while Rs1,186 billion have been proposed for subsidies. In the budget, Rs289 billion have been proposed for emergency or disaster-related expenditures.

Total development and net lending expenditures have been proposed at Rs1,287 billion including Rs1,000 billion for the Public Sector Development Programme (PSDP) and Rs287 billion for net lending.

In the budget, the economic growth target (GDP growth rate) has been set at 4.2 per cent for 2025-26, with inflation expected to remain at around 7.5 per cent on average.

The export target has been set at $3.53 billion, imports at $6.52 billion and remittances have been projected at $3.94 billion.

The current account deficit for the upcoming fiscal year has been projected to remain at $2.1 billion. The government has set a target of $960 million for services exports and $1.4 billion for services imports.

In the next fiscal year, the total exports of goods and services have been projected at $4.49 billion, with imports projected at $7.92 billion.

The budget has projected the annual inflation rate to remain at around 7.5 per cent, with an economic growth target of 4.2 per cent.

The government has projected a 4.3 per cent growth target for the industrial sector, 4 per cent for services, total investment at 14.7 per cent, fixed investment at 13 per cent, public (including general government) investment at 3.2 per cent, and private investment at 9.8 per cent.

In the budget, the national savings target has been set at 14.3 per cent, targets for major crops at 6.7 per cent, other crops 3.5 per cent, cotton ginning 7 per cent, livestock 4.2 per cent, forestry 3.5 per cent, and fishing 3 per cent.

Similarly, for the new fiscal year, manufacturing growth has been projected at 4.7 per cent, large-scale industry at 3.5 per cent, small-scale industry at 8.9 per cent, and slaughtering at 4.3 per cent.

The government has set a target 3.5 per cent for electricity, gas and water supply, 3.8 per cent for the construction sector, 3.9 per cent for wholesale and retail trade, 3.4 per cent for transport, storage, and communications, 5 per cent for information and communication and 5 per cent for financial and insurance activities.

During his budget speech, the finance minister said that, in view of Indian aggression and the violation of the Indus Waters Treaty, Pakistan has allocated Rs133 billion for the Ministry of Water Resources in the upcoming fiscal year to store water and prevent wastage.

Rs3.2 Billion Allocated for Karachi’s Water Supply

The government has allocated Rs3.2 billion for a water project in Karachi for the fiscal year 2025-2026.

Funds Allocated for Dams

The government has allocated Rs32.7 billion for Diamer-Bhasha Dam, Rs35.7 billion for Mangi Dam and Rs5 billion for three other dams in Balochistan, including Oran and Panjgur.

Uniform Sales Tax on All Vehicles

The finance minister announced that sales tax on petrol, diesel, and hybrid vehicles is being unified. All vehicles with less than 18 per cent sales tax will now be taxed at 18 per cent. Additionally, an 18 per cent sales tax will be levied on courier and logistics service providers delivering via e-commerce platforms.

Federal Non-Tax Revenue Target Set at Rs5,147 Billion

During his budget speech, the finance minister mentioned that the federal government has set a net revenue of Rs11,072 billion with a tax revenue target of Rs5,147 billion.

Federal Expenditure Estimated at Rs17,573 Billion

Of this, he said, Rs8,207 billion have been allocated for debt servicing, and the current expenditure of the federal government have been estimated at Rs16,286 billion.

Rs18.5 Billion Allocated for Education

The finance minister explained that Rs3 billion have been allocated for the reconstruction of schools affected by floods, and under the Prime Minister’s Youth Skill Development Programme, while Rs4.3 billion will be allocated to educate 161,500 youth.