The best description for the federal budget 2025-26 is that it is a routine accounting exercise with no reform measures or innovative measures to boost growth and employment.
Finance Minister Mohammad Aurangzeb presented a Rs17.573 trillion federal budget for 2025-2026 in the National Assembly with gross revenue receipts estimated at Rs19.278 trillion, including Rs8.206 trillion as the share of provinces under the National Finance Commission (NFC) award. Tax revenue target has been set at Rs14,131,000 million, with direct taxes amounting to Rs6,902,000 million and indirect taxes Rs7,229,000 million. The share of indirect taxation remains as usually high, pointing to the regressive nature of the revenue mobilization framework. The total non-tax revenue stands at Rs5,147,090 million, supported primarily by petroleum levy (Rs1,468,395 million), State Bank’s surplus profits (Rs2,400,000 million), and dividends (Rs206,134 million).
On the expenditure side, current expenditure has been contained at Rs16.286 trillion as against the revised estimates for the current fiscal at Rs16.390 trillion despite the 10 percent increase in salaries of federal government employees and a 7 percent increase in pensions. There has also been a slight increase in the pension bill from Rs1.014 billion to Rs1.055 billion despite an increase of 7 percent in the pension payments. Subsidies have been reduced from Rs1.378 trillion this year to Rs1.186 trillion for next fiscal. But the budget does not envisage any major privatization activity in the next fiscal year as estimated proceeds from sell-off effects have been stated as a meagre Rs87 billion.
Increases in sales taxes, income tax, withholding and advance tax are the main features of the federal budget for revenue mobilization. The budget has not been kind to senior citizens/retirees who depend on returns earned on their life savings. The tax rate on dividends has been enhanced to 25 percent, and to 15 percent on dividends from mutual funds. These measures are likely to divert savings and investments to real estate, gold and other commodities. The budget is silent on taxing income of the retailers and wholesalers, underlining the government’s reluctance to touch this powerful lobby.
Contrary to the finance minister’s repeated claims prior to the budget presentation that this would be a ‘bold’ budget, it is a timid document that fails to expand the tax net to distribute the burden equitably and provide meaningful relief to the corporate sector and the salaried people that carry the heavy burden of tax on their income. On the other hand, the budget has increased the burden of tax on their incomes from savings and investment. The primary focus appears to be on tax leakages and not on expanding tax base as the former involves squeezing the already taxed while the latter would require the government to demonstrate the political will and courage to rope in the elite and other vested interest groups with that have resisted all efforts aimed at taxing their incomes so far.
The budget has imposed a double burden on the common citizens in the shape of an increase in petroleum levy, withholding taxes, and indirect taxes. The limited allocations for health, education, and social welfare show the government’s utter disregard for the development needs of this vital sector. The disparity between current and development spending, with the former constituting over 92% of total expenditure, reveals a short-term goal orientation at the cost of long-term growth.
In short, the budget is bereft of any reform vision or any strategic change of direction. The budget claims to boost exports through wide-ranging reduction in custom duties across thousands of tariff lines but do we have the industrial capacity to produce exportable products? The most significant area of long term taxation reforms in the form of widening the base has also been carelessly ignored. Instead, there is a reference to efforts to bring online marketplaces and incomes and transactions of the digital economy and ramp up the powers of tax commissioners to penalise those refusing compliance.
The budget also contains some short-sighted tax measures, Last year, the taxes were imposed on stationery and children’s school supplies. This year the budget targets the teachers by abruptly withdrawing a tax rebate that was promised to be maintained. This flies in the face of the government’s claim that it highly values the work of educated Pakistani youth, who brought $400 million into the country as freelancers. The latest budget is a clear proof of its callous attitude in the matter.
The budgetary priorities are wrong and need to be reordered. A prime need is to shift the focus from indirect to direct taxation in order to promote equity. Equally important is the need to cut current expenditure and enhance allocations for education, health, and job creation. Similarly, without further delay, all state enterprises should be privatised and new employment schemes be launched for the burgeoning youth population in the country.