ISLAMABAD: As Finance Minister Muhammad Aurangzeb prepares to unveil the federal budget for FY2025–26 on June 10, early signals from Islamabad suggest that the government is likely to offer long-awaited tax relief to Pakistan’s embattled salaried class.
For millions of middle-income earners struggling under the weight of record inflation and stagnant wages, this comes as a rare piece of good news. But behind the relief lies a complex fiscal blueprint laced with tough International Monetary Fund (IMF) obligations, austerity trade-offs, and emerging questions of economic equity.
The minister, in recent public comments, hinted at restructuring income tax slabs to ease pressure on salaried individuals — a move seen as both economically and politically prudent given the growing discontent among middle-income earners. With food inflation currently around three per cent but projected to average in double digits over the coming months, electricity tariffs consistently rising, and urban household budgets stretched to breaking point, the middle class has been clamoring for fiscal breathing room.
Salaried class gains — but who else benefits?
While such measures are likely to provide some relief, critics argue that the scope of budgetary reform appears to favour formal, urban earners — leaving rural communities, informal workers, and struggling farmers outside the fold. “Tax relief is welcome, but unless it’s part of a broader restructuring that addresses rural poverty and informal labour, the gains will remain narrow,” said Dr Ayesha Raza, an economist at the Pakistan Institute of Development Economics (PIDE).
Farmers face new taxes, old burdens
Notably, in alignment with IMF directives, the government is set to introduce an income tax on agricultural earnings exceeding Rs600,000 annually starting July 2025. While policymakers argue this move is necessary to expand the tax net, farmers and experts warn it could deepen the distress in a sector already crippled by rising input costs against plummeting output rates, climate variability, and predatory middlemen.
“This is salt in the wounds,” said Muhammad Nawaz Ranjah, a wheat farmer in Punjab. “We don’t have MSP (minimum support price), we don’t have cold storage, and now we will be taxed while rich brokers and commission agents walk free.”
Subsidy cuts loom over households
Other worrying signs include possible reductions in energy and food subsidies. These adjustments, pushed by the IMF to curb the fiscal deficit, could trigger a fresh round of inflation, especially in urban areas where utility costs are already eating into disposable income.
“The contradiction is clear,” said policy analyst Ahmed Malik. “You give some relief on income tax and then wipe it out with increased electricity bills. That’s not reform, it’s a shell game.”
Defence and development priorities
A proposed 18 per cent increase in the defence budget — estimated at over Rs2.5 trillion — comes against the backdrop of escalating regional security concerns and evolving hybrid warfare threats. In this context, officials argue that sustained investment in defence is not just a matter of strategic deterrence but is essential to national sovereignty and regional stability.
While some development advocates express concern over resource allocation to education and healthcare, policymakers maintain that a strong defence infrastructure is foundational for broader socioeconomic progress. “Security is a multidimensional concept,” said Rabia Hashmi, a Lahore-based public health expert. “It includes robust defence systems, but also educated youth, food security, and functioning hospitals.” Experts stress the need for a balanced approach that protects national interests while pursuing long-term development.
Infrastructure investment — but for whom?
The Public Sector Development Programme (PSDP) is expected to see a Rs1,000 billion outlay, with heavy emphasis on highways, water projects, and energy infrastructure. However, previous experience has shown that these projects often benefit elite contractors and politically connected regions, with minimal trickle-down to marginalised communities.
This was reaffirmed during the recent Annual Plan Coordination Committee (APCC) meeting, which finalised development allocations for FY2025–26. According to planning officials, the focus will be on completing ongoing projects rather than initiating new ones, a shift that has sparked concern among provincial representatives about regional imbalances. “Development priorities must reflect equity and inclusion, not just continuity,” said a senior planning official requesting anonymity.
Renewables and solar tax breaks – a positive signal
In a notable shift, the government has reportedly decided not to impose taxes on imported solar panels, a move that aligns with global sustainability goals and encourages household-level energy independence. Given Pakistan’s growing energy crisis and dependence on fossil fuels, this policy direction has been widely welcomed by environmental groups and energy experts.
Provinces asked to do more
The IMF has also pushed for fiscal decentralisation, encouraging provinces to raise their own revenues and reduce dependence on federal transfers. While this could improve local accountability in the long run, analysts warn it could backfire in under-resourced provinces lacking the institutional capacity to generate funds independently.
The balancing act ahead
As the budget date nears, the government finds itself walking a tightrope between appeasing external lenders and delivering relief to a weary electorate. The challenge lies not just in balancing books but in ensuring that reforms don’t disproportionately burden the already vulnerable.
The salaried class may breathe a sigh of relief on June 10 — but Pakistan’s broader economic health will depend on whether the government uses this budget to correct deeper structural imbalances or continues the cycle of reactive, uneven policymaking.
