Pakistan's Budget for FY26: Key Reforms and Objectives

Strategic Insights -

Finance Minister Muhammad Aurangzeb emphasized the significance of tariff reforms proposed in the budget for the Fiscal Year 2025-26 (FY26) during a post-budget presser. The reforms, which have not been carried out for the last 30 years, are necessary for economic development and will contribute towards an increase in exports. The budget, tabled by Prime Minister Shehbaz Sharif's government, sets a 4.2% GDP growth target and announces relief measures for the salaried class while overall federal expenditure is slashed by 7%. The budget projects a deficit of 3.9% of the GDP and expects inflation to be at 7.5% in the next fiscal year.

Key Takeaways:

  • The tariff reforms proposed in the budget aim to reduce the tariff rate to zero on 4,000 out of 7,000 tariff lines, benefiting various industries and contributing to an increase in exports.
  • The budget sets a tax collection target of Rs14,131 billion, a 18% increase from the previous year, with a 1.6% rise in the tax-to-GDP ratio to 10.1%.
  • The budget proposes new tax slabs for the salaried class, reducing the minimum tax rate to 4% for taxpayers earning up to Rs2.2 million annually, and to 2.5% for those making between Rs600,000 and Rs1.2 million a year.
  • The government plans to link salaries and pensions to inflation benchmarks, following global best practices, to ensure that public and private sector compensation is aligned with economic growth.
  • The budget aims to increase the tax net by taking strict measures against non-filers, which will leave non-filers locked out of the country's financial system.

Statistics:

  • Budget deficit projected at 3.9% of GDP
  • Inflation expected to be 7.5% in the next fiscal year
  • Tax collection target of Rs14,131 billion, a 18% increase from the previous year
  • 1.6% rise in tax-to-GDP ratio to 10.1%
  • 4.2% GDP growth target
  • Rs2,550 billion allocated for defense expenditure, a 20.2% hike from the previous year
  • Rs17.57 trillion budget for FY26, with overall federal expenditure slashed by 7%

Sources:

  • The Nation: "Finance Minister highlights significance of tariff reforms proposed in budget"
  • Dawn: "Pakistan's budget for FY26: A 'one of kind' budget"
  • Express Tribune: "Pakistan's fiscal year budget for FY26 unveiled"