Pakistan Federal Budget 2025-26 Fullly Explained

The Pakistani government is set to present a Rs17.6 trillion federal budget for fiscal year 2025-26, prioritizing economic recovery, fiscal reforms, and relief for tax-burdened citizens. The budget comes amid challenges including missed GDP targets, mounting debt, and global trade disruptions, while aiming to stabilize the economy through expanded taxation, industrial revival, and controlled spending.

Key Budget Allocations & Measures

Major Expenditures

• Total Budget Size: Rs17,573 billion
• Development Budget: Rs1,000 billion
• Non-Development Expenditure: Rs16,286 billion
• Defense Allocation: Rs2,550 billion
• Debt Servicing: Rs8,207 billion

Public Sector & Salary Adjustments

• “10% increase in salaries & pensions”
• “30% disparity allowance for Grade 1-16 employees”
• Federal PSDP allocation reduced, limiting new projects

Taxation & Revenue Generation

• New Tax Revenue Target: Rs2,000 billion
• Tax-to-GDP Ratio Goal: 12.3% (FBR to contribute 10.6%)
• Digital vs. Cash Transactions:
• Lower tax rates on digital payments
• +Rs2/liter penalty for cash petroleum purchases
• 1.2% tax on bank withdrawals exceeding Rs50,000
• Petroleum Levy Hike: Rs78/liter → Rs100/liter

Economic Challenges & Reforms

Despite 4.8% industrial recovery and rising per capita income, Pakistan faces:

• High inflation & rupee depreciation
• Struggles in tax enforcement (FBR targets Rs14 trillion revenue)
• Sectoral downturns in manufacturing, real estate, and consumer goods

The government is shifting from broadening the tax base to ensuring equity, imposing higher taxes on lower-income groups while offering sector-specific relief.

Sector-Wise Development Funds

• Provinces’ Development: Rs2,869 billion
• National Highways (NHA): Rs226.98 billion
• Power Division: Rs90.22 billion
• Water Resources: Rs133.42 billion
• MPs’ Development Funds: Rs70.38 billion
• Azad Kashmir & Gilgit-Baltistan: Rs82 billion

New Taxation Policies

• Increased taxes on tobacco & digital transactions
• Stricter enforcement to curb evasion (Rs400 billion expected)
• Revised model favoring digital over cash transactions

“The government aims to generate Rs 14 trillion in revenue, a 22% increase over current projections,” though FBR’s capacity to meet targets remains uncertain.

Outlook & Implications

The 2025-26 budget reflects austerity measures amid financial constraints, with defense and debt servicing dominating expenditures. While salary hikes and disparity allowances offer relief, higher taxes on essentials and fuel may strain households.

The budget will be formally presented on Tuesday, with implementation starting July 2025. For updates, citizens are advised to monitor official announcements from the Finance Division.