The 2025–26 fiscal framework unfolds with a series of calculated tax reforms aimed at widening the revenue net while strategically supporting the salaried class and industrial sectors. As the government intensifies its pursuit of non-compliant taxpayers, it simultaneously offers measured relief to formal economy players and investors. This delicate choreography of enforcement and encouragement reflects a deeper effort to meet IMF benchmarks without derailing domestic productivity and investment sentiment.
In a bid to reconcile stringent IMF conditionalities with domestic economic aspirations, the federal government tabled an expansive yet surgically restrained fiscal blueprint amounting to Rs17.573 trillion for the fiscal year 2025–26. This budget aspires to compress the fiscal imbalance to 3.9% of GDP—translating to Rs5.037 trillion—signifying a strategic pivot toward macro-financial rectitude while cushioning selective sectors with incremental relief.
Determined to sustain traction under the IMF’s Extended Fund Facility, the government has proposed a calibrated augmentation in public sector remunerations, marginal concessions for salaried demographics and capital market participants, and a broadened taxation architecture. This fiscal tapestry aims to net an additional Rs1.16 trillion in revenues via a revitalized and emboldened Federal Board of Revenue.
Curiously, the FY26 budgetary envelope is approximately Rs1.3 trillion—or 6.9%—below that of the outgoing fiscal cycle’s Rs18.87 trillion corpus. This contraction stems predominantly from a reined-in deficit ambition and tempered expenditure accretion. Nevertheless, the document reaffirms reform fidelity, forecasting a real GDP upturn of 4.2%. The segmented growth objectives include 4.5% in agriculture, 4.3% in industry, and 4% in services. Meanwhile, inflation is tethered to 7.5%, and the current account chasm is predicted to hover around $2.1 billion—merely 0.5% of GDP.
To stay congruent with IMF fiscal benchmarks, the government has etched a primary surplus target of Rs3.17 trillion, or 2.4% of GDP—making this the third year on record to aim for surplus terrain. The aggregated federal deficit is projected to decline to 5% of GDP, edging down from FY25’s revised 5.6%. Nationally, the consolidated deficit is anticipated to settle at 3.9%, conditional on provincial governments contributing a formidable Rs1.464 trillion in surplus—a notable elevation from this year’s Rs1 trillion.
Debt amortization remains a fiscal leviathan, albeit with a trimmed appetite. Public debt servicing will absorb Rs8.2 trillion—an 8% reduction owed largely to ebbing interest rates. The tax machinery, helmed by FBR, has been charged with harvesting Rs14.13 trillion—an 18.7% spike from FY25’s recalibrated numbers. In parallel, non-tax inflows are forecast at Rs5.147 trillion, bolstered by Rs2.4 trillion in State Bank windfalls and Rs1.468 trillion from the Petroleum Development Levy. Moreover, Rs87 billion in privatization proceeds is expected, predominantly from divestitures in Pakistan International Airlines and select power distribution entities.
Developmental expenditures remain a fulcrum. The federal Public Sector Development Programme (PSDP) is fixed at Rs1 trillion, while provinces are collectively apportioned Rs2.9 trillion—bringing total public development expenditure to Rs4.2 trillion. The defence apparatus is allocated Rs2.55 trillion—an uptick of 17.1%—while civil pensions account for Rs1.05 trillion, and Rs1.2 trillion is dedicated to power sector subsidies.
Social support has not been neglected. The Benazir Income Support Programme (BISP) has been fortified with a 21% enhancement, scaling to Rs716 billion. Government salaries are slated for a 10% increment; pensions will ascend by 7%. In a controversial maneuver to widen the tax lattice, the government has slapped an 18% general sales tax on formerly exempt solar panels. Likewise, GST on compact vehicles under 850cc has been raised from 12.5% to the standard 18%. A nascent carbon tax—Rs2.5 per litre on petrol, diesel, and furnace oil—has also been unveiled, with intent to escalate it to Rs5 in FY27.
The government has signaled a firmer stance on tax compliance by doubling the local e-commerce tax for non-compliant entities from 1% to 2%. Simultaneously, it has nudged the withholding tax on cash withdrawals for non-filers from 0.6% to 0.8%, tightening the financial net around informal transactions. A fresh levy of 5% has been introduced on annual pension incomes surpassing Rs10 million for retirees below 70—a move poised to stir discourse among high-net-worth pensioners.
Contrasting these stiffer measures, the salaried class has been extended a reprieve through a recalibration of income tax slabs. Capital gains and dividend tax rates have been left untouched, providing consistency to investment returns. However, the corporate landscape sees a slight concession, with the super tax trimmed by 0.5 percentage points for companies earning between Rs200 million and Rs500 million.
In a significant departure from past tax shelters, the government has rescinded entrenched exemptions granted to industries operating in the former FATA and PATA regions. Nevertheless, a transitional cushion remains in place—a one-year income tax holiday—followed by a phased implementation of sales tax, commencing at 10% in FY26 and culminating at 16% by FY29.
At the heart of these new fiscal contours lies a dual strategy: enhance documentation and tax recovery, while incentivizing productive sectors. The doubling of the local e-commerce tax to 2% for non-active taxpayers and the bump in cash withdrawal tax for non-filers are clear indicators of a tougher compliance regime. Additionally, the imposition of a 5% tax on large pensions below the age of 70 signals a shift toward progressive taxation, albeit one that could face legal or political pushback.
On the flip side, the downward revision in income tax slabs, particularly for middle-income earners, represents a conscious attempt to offer some breathing room amid inflationary pressures. The cut in super tax for mid-tier corporates suggests a broader goal of revitalizing private sector investment. Withdrawal of tax exemptions for FATA/PATA industries marks the end of a longstanding policy loophole, replaced with a phased sales tax regime—gradual, yet firm. The timeline through FY29 offers industry players room to adapt, though its long-term success will depend on state facilitation and infrastructure in those areas.
The most telling signal of policy intent is embedded in the customs duty reductions across key sectors. These cuts, especially in steel, textiles, pharma, and auto, show an intent to re-energize domestic manufacturing and reduce input costs—critical for both export growth and import substitution. Petroleum exploration incentives further indicate the state’s desire to attract investment in energy—a sector pivotal to national economic security.
This fiscal package doesn’t merely shuffle numbers—it subtly redefines Pakistan’s economic philosophy. Through a mix of targeted enforcement and sectoral relief, the government aims to create a more documented, investment-friendly economy. Whether these measures translate into sustainable fiscal gains and growth will hinge on implementation consistency, institutional capacity, and political will. But for now, the message is clear: compliance will no longer be optional, and productivity will be rewarded.