KEY POINTS
- Salaried class gets tax relief as the income tax rate is slashed
- Solar tax scaled down to target only 46% of imports
- FBR arrest powers clipped—no detention without a court warrant
- Support for farmers and e-commerce introduced
- Social safety net expands—BISP budget raised to Rs716 billion
ISLAMABAD: Pakistan’s Finance Minister Muhammad Aurangzeb on Monday said the federal budget for FY2025–26 is a balanced, reform-oriented plan aimed at promoting economic growth, easing public hardship, and ensuring fiscal discipline amid global and regional challenges.
Concluding the budget debate in the National Assembly (lower house of the country’s Parliament), Aurangzeb said the budget was designed to promote industrial activity, streamline government expenditures, enhance revenues through fair taxation, and transition Pakistan toward an export-led and sustainable growth model.
Relief for salaried class
The finance minister said the government reduced the proposed income tax rate from 2.5% to 1% for individuals earning between Rs0.6 million and Rs1.2 million annually, extending benefits to those earning up to Rs3.2 million.
Aurangzeb also announced no taxes on pension commutation or gratuity, with exemptions for pensioners over the age of 75 and taxation limited to annual pensions exceeding Rs10 million.
Solar panel tax recalibrated
In response to concerns over renewable energy affordability, the proposed 18% sales tax on imported solar panel components was revised to 10%, applicable to just 46% of items, resulting in only a 4.6% price increase.
Aurangzeb condemned artificial price hikes and hoarding, warning of strict legal action against exploitative practices in coordination with provincial authorities.
FBR’s arrest powers curtailed
A key reform under the Prime Minister’s directives significantly restricts the Federal Board of Revenue’s (FBR) arrest authority.
Arrests in cases involving tax evasion above Rs50 million now require a court warrant, evidence of deliberate evasion, and approval from a three-member FBR committee. Detainees must also be presented before a special judge within 24 hours.
Asset declaration measures eased
Originally proposed curbs on asset purchases by undocumented individuals have been relaxed. No restrictions will apply to the purchase of residential properties worth up to Rs50 million, commercial assets up to Rs100 million, or vehicles worth up to Rs7 million.
Capital gains tax remains exempt on property sales after six years of ownership, provided the property was acquired before July 1, 2024.
Support for farmers, e-commerce, and local industry
To address the adverse impact of duty-free raw material imports on domestic agriculture, the budget proposes a sales tax on imported raw cotton and yarn to restore competitiveness for local farmers.
In parallel, collateral-free loans of up to Rs1 million will be extended to small farmers (owning up to 12.5 acres), covering essential inputs like seeds, fuel, and fertilisers.
A new electronic warehouse receipt system will also be launched to help farmers secure better prices and storage.
Recognising the rising contribution of e-commerce, the tax structure has been rationalised to facilitate sectoral growth.
High-income segments to shoulder new burden
The budget’s tax burden largely targets higher-income groups and corporate entities. Tax on inter-corporate dividends via mutual funds and similar instruments will rise from 25% to 29%, while returns on government securities held by companies will be taxed at 20%, up from previous rates.
The poultry industry will now face a Rs10 per broiler chick levy, aimed at increasing tax contributions from sectors traditionally under-taxed.
No new burden on exporters
In line with the Prime Minister’s directive, export-oriented industries have been kept largely exempt from new taxes to preserve global competitiveness, amid ongoing geopolitical volatility.
Enhanced social protection and skills development
The Benazir Income Support Programme (BISP) allocation has been increased to Rs716 billion, aiming to benefit over 10 million low-income households.
Aurangzeb emphasised transforming these families into economically independent units through skills development and targeted assistance.
A partnership with the British Asian Trust will provide market-aligned skills training for youth, while a 20-year low-income housing loan scheme was introduced to promote home ownership.
Under the Women Inclusive Finance Programme, Rs14 billion in loans were disbursed to over 193,000 women, with a similar amount set for the upcoming year with Asian Development Bank support.
Industry, EVs, and energy
The finance minister also outlined upcoming policy measures, including a comprehensive new Industrial Policy, Electric Vehicles (EV) development framework, and broad energy sector reforms, all aimed at modernising Pakistan’s industrial base and addressing environmental concerns.
Monitoring regional risks, committing to stability
Aurangzeb flagged Iran-Israel tensions as a potential risk to regional economic stability.
A high-level committee, constituted by Prime Minister Shehbaz Sharif on June 14, is tasked with evaluating and responding to any fallout from the crisis.
Aurangzeb reiterated the government’s commitment to phased development, economic documentation, and green growth.
He said the budget is a step toward reducing informality, broadening the tax base, promoting self-reliance, and building a resilient national economy.
“This is not just a financial document—it’s a roadmap for inclusive progress, responsible governance, and future-ready reforms,” the finance minister concluded.
