ISLAMABAD: In a recent development, the Finance Minister Muhammad Aurangzeb presented the budget 2025-26 to the National Assembly on Tuesday, with a total outlay of Rs17.8 trillion.
Highlighting economic performance, the finance minister stated that the current account deficit stood at $1.7 billion in the previous fiscal year, but the current year closed with a surplus of $1.5 billion due to government interventions.
FinMin Muhammad Aurangzeb, while presenting Budget 2025-26, announced a comprehensive economic reform plan that includes key changes to the customs regime, measures to improve water infrastructure, and structural adjustments to State-Owned Enterprises (SOEs).
Aurangzeb revealed that additional customs duty will be phased out in four years, while regulatory duty will be eliminated over five years. He also announced the complete abolition of the Fifth Schedule of the Customs Act 1969 within five years, calling it a necessary step towards simplifying the tax system.
As part of customs reforms, the number of customs duty slabs will be reduced to four, and the maximum customs duty rate will be lowered from 20 percent to 15 percent.
The finance minister highlighted that these reforms will benefit multiple sectors, including pharmaceuticals and IT, and help reduce the average tariff, making Pakistan’s trade regime one of the most competitive in the region.
The government has also announced the decision to extend emergency water storage infrastructure.
On financial innovation, the minister confirmed that preparations for launching Panda Bonds have been completed. This will pave the way for Pakistan‘s access to China‘s capital market and attract foreign investment.
Speaking about the allocations in the Finance Bill 2026, the finance minister said the federal budget for fiscal year 2025-26 marks the beginning of a comprehensive strategy to build a competitive economy.
Aurangzeb noted that the country’s GDP is expected to grow 4.2% while the average inflation rate is likely to remain at 7.5% in the next fiscal year. “Budget deficit to be 3.9% of the country’s GDP while primary surplus will be 2.4%.”
Defense spending is projected at PKR 2,550 billion in FY26, up from PKR 2,122 billion. Subsidies are budgeted at PKR 1,186 billion, and civil government operational costs are expected to rise to PKR 971 billion from PKR 839 billion.
Grants and transfers to provinces are set to fall to PKR 1,619 billion from PKR 1,777 billion. However, under the National Finance Commission (NFC) award, provinces are expected to receive PKR 8,300 billion in FY26, compared with PKR 7,438 billion this year.
The Public Sector Development Program (PSDP) will receive PKR 1,065 billion—up from PKR 745 billion in FY25.
The federal cabinet has approved a 10% raise in the salary scales of government employees and a 7% raise in the pensions of retired public servants.
Though the cabinet, which met on Tuesday, had broadly nodded through the federation budget for fiscal 2025-26, the discussion over salaries for government employees and other issues continued.
The PPP, a key coalition partner of the PML-N government, demanded a further increase in salaries, but the Federal Finance Minister Muhammad Aurangzeb said that the government was already providing the maximum possible relief to the common man in the budget.
The cabinet proposed a 10% increase in the salaries of government employees.
Prime Minister Shehbaz Sharif accepted the offer and negated the offer of a 6% increase, saying salaries should increase by 10%. The prime minister and his cabinet colleague ultimately approved the decision.
According to the Budget 2025-26, the government has ensured to provide tax relief to the salaried class of Pakistan.
According to the Finance Bill, salaried earners up to Rs 6 lakh are exempted from tax. People earning a salary of Rs 6 lakh to Rs 1.2 lakh will pay 1 percent tax on the amount above Rs 6 lakh, Finance Bill
People earning an annual salary of Rs 1.2 lakh to Rs 2.2 lakh will pay a fixed tax of Rs 6,000 and an additional tax of 11 percent. People earning an annual salary of Rs 2.2 lakh to Rs 3.2 lakh will have to pay a fixed tax of Rs 1.16 lakh and an additional tax of 23 percent.
Additionally, People earning an annual salary of Rs 3.2 lakh to Rs 4.1 lakh will have to pay a fixed tax of Rs 3.46 lakh and an additional tax of 30 percent, the Finance Bill stated.
Moreover, People earning an annual salary of Rs 4.1 lakh and above will have to pay a fixed tax of Rs 6.16 lakh and an additional tax of 35 percent.
| 50,000 | 600,000 | – | – | – |
| 100,000 | 1,200,000 | 30,000 | 6,000 | -24,000 |
| 200,000 | 2,400,000 | 230,000 | 162,000 | -68,000 |
| 300,000 | 3,600,000 | 550,000 | 466,000 | -84,000 |
| 400,000 | 4,800,000 | 945,000 | 861,000 | -84,000 |
| 500,000 | 6,000,000 | 1,365,000 | 1,281,000 | -84,000 |
| 600,000 | 7,200,000 | 1,785,000 | 1,701,000 | -84,000 |
| 700,000 | 8,400,000 | 2,205,000 | 2,121,000 | -84,000 |
| 800,000 | 9,600,000 | 2,625,000 | 2,541,000 | -84,000 |
| 900,000 | 10,800,000 | 3,349,500 | 3,257,100 | -92,400 |
| 1,000,000 | 12,000,000 | 3,811,500 | 3,719,100 | -92,400 |
The forthcoming Federal Budget 2025–2026 is expected to see a significant increase in gas prices as the government looks to all sectors for capital.
Electricity rates are expected to increase by Rs7.12 per unit beginning July 1, 2025, as a result of the power sector’s circular debt surpassing Rs2.396 trillion.
Additionally, it is estimated that monthly power bills would be subject to a 10% debt service fee (DSS), which will be collected over the following six years.
The government intends to borrow Rs1.252 trillion from banks to handle repayments. The circular debt of the gas industry has also skyrocketed to Rs2.85 trillion, leading to a projected rise in gas rates of Rs116.90 per MMBTU starting on July 1, 2025, with a follow-up increase set for February 15, 2026
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