Aurangzeb unpacks Budget FY2025-26: reforms, relief and retrenchments

ISLAMABAD: Finance Minister Muhammad Aurangzeb gave a detailed post-budget press briefing after journalists returned from the protest walkout. Federal Board of Revenue (FBR) Rashid Mahmood Langrial was also present during the briefing.

Starting with the tariffs and tax reforms – themes of most questions at the press conference – he said that tariff reforms had remained stagnant for over three decades but now they are being actively pursued. “We have to take the country forward by bringing reforms.” Detailing the newly introduced measures in this regard he said that customs duty has been abolished on 4,000 tariff lines, and has been reduced on 2,700 additional tariff lines. Moreover federal excise duties have also been eliminated in several areas to lower transaction costs.

Finance Minister press conference: journalists walkout in protest

“These measures are meant to simplify the tax structure and promote industrial and trade activity,” Aurangzeb explained.

He also reiterated the relief offered to salaried individuals saying that it was extended “as much as fiscal space allowed.” While lower and middle-income earners received tax relief, a higher tax slab was introduced for high-income earners within the same category.

“Salaries and taxes are directly linked to inflation,” he said, adding that the government is also considering indexing pensions to inflation and has linked them to the Consumer Price Index (CPI) as part of broader pension reforms.

Speaking on tax enforcement and legislation to implement that, he said that one of the major gaps identified in past fiscal years was weak enforcement of existing tax laws. He also acknowledged that while tax laws existed, enforcement was ineffective, which has also elicited criticism from international institutions like the IMF.

“This year, enforcement has taken place and as a result, Pakistan’s tax-to-GDP ratio is projected to rise to 10.3% this year and 10.9% next year,” he added.

The budget includes Rs 312 billion in additional taxes as part of a broader Rs 2.2 trillion tax effort. The minister said that there was a need for parliamentary cooperation, “We will get the legislation passed in both houses. Legislation will help prevent system leakages.”

Speaking on agriculture, he said that the government chose not to impose taxes on fertilizers and agricultural medicines, despite pressure from the IMF. “On the Prime Minister’s instructions, we protected agriculture,” said both the Finance Minister and the Finance Secretary.

They added that agriculture “is and will remain the backbone of the economy,” and that the federal government is committed to working with provinces to boost financing for small farmers. There are also several proposals under review to further stimulate growth in the agricultural sector.

NFC Award

Finance Minister Muhammad Aurangzeb also affirmed that no fiscal decisions will be made without provincial consultation, adding that Prime Minister Shehbaz Sharif has called for the National Finance Commission (NFC) to meet in August. He stated the NFC will review key financial matters, including salary adjustments for ministers and parliamentarians, noting that cabinet salaries were last raised in 2016. “Salaries must reflect inflation,” Aurangzeb said, stressing that gradual increments could have prevented current fiscal pressures.

Taxation of solar panels

Both FBR Chairman and Finance Minister Muhammad Aurangzeb clarified that Pakistan has two types of solar panels with different tax treatments: locally assembled solar equipment previously enjoyed tax exemption, while imported complete solar units were already taxed. The minister explained that this tax disparity had created an uneven playing field for domestic manufacturers. “The tax on imported solar panels was implemented specifically to protect and promote Pakistan’s local solar industry,” the FBR chairman stated, emphasising that the measure aims to boost domestic production and reduce reliance on foreign solar imports.

Retail and power sector

It was pointed out that the formal retail sector generates equivalent value to online commerce, noting that consumers pay taxes whether purchasing online or through traditional channels. He highlighted tax compliance gaps in the e-commerce sector, stating, “Online sellers operating cash-on-delivery models have significant untaxed turnover, while formal retailers report losing market share.” To level the playing field, the FBR has introduced an 18% differential tax mechanism and established three product categories (groceries, clothing, electronics) for online taxation. Separately, the chairman confirmed no additional power surcharges are being imposed, though major power sector reforms are underway. Finance Minister added that strict enforcement has satisfied international institutions, warning that without legislative action, Pakistan may need to impose 400-500 billion in new taxes.