Budget 2025-26: Govt Walks Tightrope on Relief, Reform, and Revenue
News Desk
Islamabad: Defending the limited relief offered to the salaried class in the federal budget for 2025-26, Finance Minister Muhammad Aurangzeb said on Wednesday that the government’s capacity constrained the extent of support it could provide.
Addressing a post-budget press conference in Islamabad, the minister said both he and Prime Minister Shehbaz Sharif were committed to easing the burden on the salaried class, but stressed the need to operate within fiscal limitations.
“We must walk within our financial limits. The direction has been set — it is towards relief — but the pace depends on capacity,” Aurangzeb said. He noted that the salaried class had been divided into income slabs, with higher earners taxed more heavily to ensure fairness.
Export-Led Growth and Tariff Reforms
Outlining the broader economic strategy, the finance minister said the 2025-26 budget is focused on driving an export-led economy. In a move described as “unprecedented in the last 30 years,” the government has eliminated customs duties on over 4,000 of the 7,000 tariff lines. Duties on an additional 2,700 lines have been reduced, including 2,000 related to raw materials.
“These reforms aim to reduce the cost of doing business, enhance industrial competitiveness, and boost exports,” Aurangzeb said, adding that the government plans to lower the overall tariff structure by 4% over the coming years.
Super Tax, Construction Sector Incentives, Pension Reforms
The budget includes a phased reduction in the super tax on mid-sized corporates, with Aurangzeb saying even a 0.5% cut is a “strong signal” to stimulate business activity. He also pointed to efforts to reduce transaction costs, particularly in real estate and construction, by eliminating federal excise duty on select items.
Reforms to the pension system were also announced, including a shift toward a Contributory Based Index (CBI) model to ensure long-term sustainability. “Pensions and salaries will now be adjusted in line with inflation, as is the case globally,” he said, emphasizing that this year’s increases are aligned with falling inflation rates.
IMF Pressured Agriculture Tax, But PM Intervened
Aurangzeb revealed that the International Monetary Fund (IMF) had urged the government to tax the agriculture sector, including inputs like fertilizers and pesticides. However, the proposal was deferred following the prime minister’s intervention.
“We convinced the IMF to postpone this structural benchmark to protect farmers,” he said. The minister reiterated agriculture’s central role in the economy and promised policy support for small farmers, including access to affordable credit.
Additional Taxes a Fiscal Compulsion
Acknowledging public concern over new taxes, Aurangzeb said these measures were a necessity, not a choice, due to Pakistan’s fragile fiscal state and lack of credibility with international lenders.
“Last year, they didn’t believe we could enforce our own tax laws,” he admitted. “But now, with over Rs400 billion in collections, we’ve shown that enforcement is possible.”
The tax-to-GDP ratio is projected to rise from 10.3% to 10.9% in the next fiscal year, with Rs312 billion in new taxes out of a Rs22 trillion revenue target. The remainder is expected from automatic growth and improved enforcement.
“If we fail to enforce reforms, we may be forced to introduce additional taxes worth Rs400–500 billion again,” he warned, urging parliamentary support for pending legal amendments.
Ministerial Salaries, Austerity, and NFC Award
Responding to criticism over increased salaries for ministers and parliamentarians, the finance minister clarified that the last adjustment took place in 2016. “If salaries had increased by 5% annually since then, this wouldn’t seem abrupt,” he said.
He maintained that the government was observing austerity, with only a 2% increase in federal expenditure this year. “Despite the burden of loans, we’re providing relief while keeping spending tight,” he said.
Aurangzeb also announced that a new National Finance Commission (NFC) Award would be convened in August to ensure fair and transparent resource distribution among provinces.
Level Playing Field for Retail Sectors
Chairman Federal Board of Revenue (FBR) and the Secretary Finance, present alongside the minister, highlighted efforts to ensure tax parity between formal retail and online businesses.
“The difference lies in record-keeping,” said the FBR Chairman, noting that many online sellers lack formal documentation. Removing the 18% sales tax on online purchases, he added, would distort the playing field and hinder transparency.
“Whether you buy from a physical store or online, the tax is ultimately paid by the consumer. Our goal is a fair and transparent system for all,” he concluded.
Input from Samaa News
