Finance Minister Muhammad Aurangzeb unveiled the federal budget for FY2025-26, aiming for 4.2% GDP growth and setting a record tax collection target of Rs14,131 billion. The budget offers significant relief for Pakistan’s salaried class while expanding the tax net to include sectors like solar energy, e-commerce, and property.
Salaried Class Relief
Aurangzeb announced revised income tax slabs with reduced rates across all tiers:
- Rs600,000–Rs1.2 million: Tax reduced from 5% to 2.5%
- Rs1.2m: Tax lowered to Rs6,000 (from Rs30,000)
- Up to Rs2.2m: Tax reduced to 11% (from 15%)
- Rs2.2m–Rs3.2m: Tax cut to 23% (from 25%)
- Above Rs10m: Surcharge reduced by 1%
A 10% salary hike was also announced for government employees (Grade 1–22). The minister emphasized that these measures aim to retain talent and prevent brain drain.
Pension Reforms
- 7% increase in pensions
- Family pension capped at 10 years post-spouse’s death
- Multiple pensions abolished
- Re-employed retirees must choose between salary or pension
- 5% tax on pension income over Rs10m (below age 70)
Property Taxation Reforms
To revive construction activity:
- Withholding tax on property purchase cut from 4% to 2.5%
- Federal excise duty on transfer of commercial property abolished
- Stamp duty in Islamabad reduced from 4% to 1%
- Tax credit on mortgages for houses up to 10 marlas or flats up to 2,000 sq. ft.
Sales Tax and Solar Sector
- 18% sales tax on imported solar panels
- 18% GST on e-commerce transactions collected via logistics providers
- 18% GST on low-taxed vehicles
- 10% gradual GST implementation in merged districts of KP and Balochistan
- Third Schedule additions include pet food, chocolates, coffee, cereal bars
- Withdrawals: Reduced rates on vermicelli, sheer mal, and cars up to 850cc
- Exemption: 10% GST removed on local supply of buns and rusks
Finance Sector and Energy
- Tax on profit from interest increased from 15% to 20%
- Mutual funds dividends to be taxed at 15% and 25%
- Advance tax on non-filers’ cash withdrawals raised from 0.6% to 1%
- Carbon levy of Rs2.5/litre on petrol, diesel, and furnace oil, rising to Rs5 in FY27
Other Key Measures
- Commercial property rent to be taxed at 4% of fair market value
- Major financial transactions limited to filers only
- 25% tax rebate for full-time teachers and researchers reinstated (retrospectively)
This budget marks a shift towards expanding the tax base while offering targeted relief to middle-income earners and spurring growth in construction and formal housing finance. However, sectors like solar and e-commerce now face higher fiscal scrutiny, raising concerns among industry stakeholders.
Story by Syed Talal Ahsan
