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Budgets

Pakistan's FY2025-26 Budget: Balancing Salaried Relief with Fiscal Discipline

Strategic Insights

— 2 min read

The FY2025-26 budget, presented by the finance minister to the National Assembly, has managed to strike a delicate balance between providing substantial tax relief to salaried classes and fulfilling the need to slash expenditures and raise revenue collection. The budget projects a 7.0 per cent reduction in overall federal expenditure to Rs17.57 trillion, while FBR tax revenues are expected to grow by 18.7 per cent to Rs14,131 billion. The biggest winners of the budget are low- and middle-income earners, with significant reductions in tax rates. However, the relief comes with a caveat - indirect taxation remains a major concern, with the petroleum development levy (PDL) being imposed on furnace oil and a carbon tax of Rs2.5/litre on petrol, diesel, and furnace oil. The budget's focus on export-oriented growth and fiscal discipline is accompanied by a projected growth rate of 4.7 per cent of GDP, which many have deemed optimistic.

Key Takeaways:

  • FBR tax revenues are expected to climb by 18.7 per cent to Rs14,131 billion, with a 7.0 per cent reduction in overall federal expenditure to Rs17.57 trillion.
  • Low- and middle-income earners are the biggest winners, with significant reductions in tax rates: those making up to Rs2.2 million annually will see a 4.0 per cent reduction in the minimum rate from 15 per cent to 11 per cent; those making Rs600,000 to Rs1.2 million a year will see their tax rate drop from 5.0 per cent to 2.5 per cent; and those making Rs60,000 to Rs120,000 per month will only be charged a tax rate of 1.0 per cent.
  • The budget sees a 4.7 per cent projected growth rate of GDP, which many have deemed optimistic, given the growth rate of 2.7 per cent for FY25.
  • Indirect taxation remains a major concern, with the PDL being imposed on furnace oil and a carbon tax of Rs2.5/litre on petrol, diesel, and furnace oil.
  • The government is still expecting to collect more in direct taxes in FY2025-26 as compared to the previous fiscal, Rs6.9 trillion for FY26 versus Rs5.8 trillion for FY25.

Statistics:

  • FBR tax revenues are expected to grow by 18.7 per cent to Rs14,131 billion.
  • Overall federal expenditure is projected to reduce by 7.0 per cent to Rs17.57 trillion.
  • The non-tax revenues target has been kept at Rs5,147 billion, up 5.0 per cent year-on-year compared to FY25.
  • The petroleum development levy (PDL) will now be imposed on furnace oil.
  • A carbon tax of Rs2.5/litre has been imposed on petrol, diesel, and furnace oil for FY26.
  • Revenue collection from indirect taxes is expected to rise to Rs7.2 trillion from around Rs6 trillion.

Sources:

  • The Express Tribune

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