Pakistan Annual Budget for Fiscal Year 2025-2026

Overview of Pakistan Annual Budget for Fiscal Year 2025-2026

The budget for the fiscal year 2025-26, presented amidst signs of macroeconomic recovery, introduces decisive fiscal reforms targeting economic stabilization, broadening the tax base, and digital economy integration. It reflects the government’s continued engagement with the IMF and aims to document the economy more aggressively.

Economic Growth and Stability

The government has focused on fiscal consolidation, monetary tightening, and exchange rate stabilization to support economic recovery. Encouraging investor sentiment and IMF support under the Extended Fund Facility have underpinned renewed confidence. However, sustained growth depends on successful implementation of structural reforms and improved public sector efficiency.

Tax Reforms 2025-26

The budget introduces broad-based tax reforms, with a particular focus on:

  • Digital Economy Taxation: Introduction of a new Digital Presence Proceeds Levy and final tax regime on e-commerce, with tax rates between 0.25% and 2% collected via intermediaries and courier services.

  • Salaried Individuals: Relief provided through a 1% reduction in surcharge for income exceeding Rs. 10 million, plus revised income tax slabs.

  • Super Tax: Reduced by 0.5% for businesses with income between Rs. 200–500 million.

  • Rental Income: Deemed rental value introduced at 4% of fair market value for commercial properties.

  • Depreciation and Deductions: Disallowance introduced for purchases from non-NTN holders and cash transactions above Rs. 200,000.

  • Banking Sector: Tax burden remains high, with corporate tax rate for banks set at 44% for TY 2025, declining to 42% by 2027.

Updated Budget Allocations by Sector

Sector (For Expenditure)

Budget 2023-2024 (Rs in Million)

Revised (Rs in Million)

Budget 2024-2025 (Rs in Million)

General Public Service

10,444,266

11,219,999

13,640,239

Defence

1,809,467

1,859,313

2,128,781

Education

97,098

103,684

103,781

Health

24,210

27,789

28,171

Public Order and Safety Affairs

237,215

253,498

283,051

Economic Affairs

210,835

261,642

357,735

Environment Protection

1,226

1,142

7,252

Housing and Community Amenities

22,986

6,414

27,917

Recreation, Culture and Religion

16,782

18,252

18,466

Social Protection

480,309

480,267

607,997

Social Sector Investments

There is visible commitment to social protection and infrastructure. Health and education allocations remain modest in percentage terms, but the introduction of targeted education digitization and low-cost housing interest tax credits marks a positive step. However, the performance will rely heavily on execution and accountability, as these sectors have historically underperformed in delivery and transparency.

Inflation Control Measures

Subsidies and price control initiatives are introduced for vulnerable populations, alongside restrictions on economic transactions by non-filers, including:

  • Ban on purchasing immovable property or vehicles

  • Restrictions on opening bank accounts and securities trading

This aims to document economic activity and increase filer participation, but its success will require firm enforcement.

Impact on Businesses

The reduction of advance tax on property purchases and the final tax regime for digital goods sellers may benefit small businesses. Yet, increased compliance requirements for e-commerce platforms, mandatory NTN/Sales Tax registration, and withholding obligations for courier/payment intermediaries can create compliance challenges.

Budget Comparison with Previous Years

The 2025–26 federal budget continues the trend of rising public expenditure, with increased allocations across key sectors to support economic formalization and digital integration. Infrastructure and economic affairs spending saw notable growth, while corporate tax rates remained unchanged, and super tax saw a slight cut for mid-level incomes.

Unlike 2024–25’s focus on tax relief, this year emphasizes compliance—introducing digital tax measures and disallowing large cash-based deductions. Social sector funding, particularly for health and education, remained largely flat, signaling a shift toward improving delivery efficiency over expansion.

Key Takeaways

  • Shift from Tax Cuts to Enforcement:
    Unlike previous budgets which emphasized tax rate reductions, 2025–26 prioritizes widening the tax net—particularly targeting digital sellers and undocumented sectors.
  • Continued Growth in Infrastructure & Economic Affairs Spending:
    Spending in economic affairs has more than tripled compared to 2023–24, and public service funding continues its upward trajectory, reflecting state-led growth initiatives.
  • Super Tax Relief for Mid-Sized Corporations:
    A 0.5% reduction for companies earning between Rs. 200–500 million provides limited but targeted corporate relief.
  • Digital Economy in Focus:
    New levies and final tax regimes on digital platforms reflect a structural shift toward taxing e-commerce and tech-based income.
  • Modest Increase in Social Sectors:
    Health and education spending show only marginal increases, maintaining a steady line rather than a major boost seen in post-COVID budgets.

The 2025–26 budget is more aggressive in enforcement than incentive, marking a transition from rate-based relief to compliance-driven growth. Compared to the 2024–25 focus on corporate relief and social spending, the current budget seeks to tighten the tax framework, enhance documentation, and generate revenue through systemic digitization.

Challenges Ahead

While the budget is ambitious in digitization and revenue mobilization, major gaps remain in fiscal deficit reduction, exports enhancement, and import substitution. Additionally, the withdrawal of key exemptions (like on pension income and real estate) may face pushback from stakeholders.

Success hinges on effective policy enforcement, structural reforms, and depoliticized implementati

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