A people-friendly Federal Budget for the next financial year 2026-27, with a total outlay of 18,771 billion rupees, has been presented with a focus on accelerating economic growth and providing tax relief.

Unveiling the budgetary proposals for the next financial year in the National Assembly in Islamabad on Friday, Minister for Finance Muhammad Aurangzeb said that, out of the total outlay, 8,054 billion rupees will be earmarked for the payment of markup.

The Finance Minister said the gross revenue of the Federal Government for the next fiscal year is estimated to be 20,600 billion rupees. FBR revenue collection is estimated to be 15,264 billion rupees, which is 17.6 billion rupees higher than the current fiscal year. The share of provinces in the federal receipts is 8,848 billion rupees. The target of non-tax revenue is 5,336 billion rupees.

Muhammad Aurangzeb said the GDP growth rate for the next fiscal year is expected to be four percent, while the average inflation rate is expected to be 8.2 percent. The budget deficit will be 3.6 percent of GDP, while the primary surplus will be two percent of GDP.

The Finance Minister said 1000 billion rupees have been allocated for the federal PSDP.

He emphasized that the country's defence is the government's foremost priority for which three thousand billion rupees will be provided. One thousand one hundred sixty-nine billion rupees have been earmarked to meet pension expenditures, while 1,091 billion rupees are being allocated for subsidies on electricity and other sectors. Similarly, two thousand six hundred eighty billion rupees are being set aside in the domain of grants for the Benazir Income Support Programme, Azad Jammu and Kashmir, Gilgit-Baltistan, and the newly merged districts of Khyber Pakhtunkhwa.

Muhammad Aurangzeb said one thousand and seventy-one billion rupees have been allocated for the expenditures of the civil administration.

The Finance Minister said 71 billion rupees have been set aside for the Prime Minister Apna Ghar scheme and 88 billion rupees for the expansion of the Export Refinance Scheme to boost exports.

The Finance Minister expressed the government’s intent to expand the coverage of flagship initiatives under the Benazir Income Support Programme. In this regard, he said the Kafaalat Programme will be expanded to 12 million families and the Taleemi Wazaif Programme will be widened to benefit 9.2 million children.

He said there is a proposal to earmark 838 billion rupees for BISP for the next financial year.

Muhammad Aurangzeb said it has been proposed to allocate 146 billion rupees for Azad Jammu and Kashmir, 88 billion rupees for Gilgit-Baltistan and 95 billion rupees for newly merged districts of Khyber Pakhtunkhwa from the current expenditures.

Sharing details of the National Development Program worth 3675 billion rupees for the next financial year, he said this includes 1,000 billion rupees for Federal PSDP, 2,224 billion rupees for provincial development programs and 451 billion for development spending by State-Owned Enterprises (SOEs).

He said this distribution reflects a constitutional arrangement under which, following the 18th Constitutional Amendment, a large share of social-sector responsibilities has been transferred to the provinces, while the federal government remains focused on projects of strategic national importance.

Over 60 percent of the Federal PSDP has been allocated to the key sectors of transport and communications, water resources and energy. The remaining allocation has been distributed among other important sectors, including higher education, agriculture, health and information technology.

He said all initiatives under “Uraan Pakistan” and the Five Es (5Es) of the National Economic Transformation Plan constitute important components of this development programme.

The Finance Minister said development of highways, rail and ports tops the list of our priorities.

He pointed out that the largest allocation of 365 billion rupees has been set aside for transport infrastructure in the federal development programme. Out of this, 100 billion rupees have been allocated for upgrading the important N-25 Pakistan Highway, which connects Karachi to Chaman into a dual carriageway.

Similarly, the completion of the North-South Motorway Network will include the construction of the M-6 Sukkur–Hyderabad Motorway at a cost of 30 billion rupees. Under new ADB financing, work will begin next financial year on the Karachi–Rohri section, for which 25 billion rupees have been allocated.

He said two billion rupees have been earmarked for the Thar Coal Connectivity Project, which will link local energy resources to the national transport system. In addition, ninety three billion rupees have been allocated for basic infrastructure of Gwadar Port, railways and transport projects in all the provinces to ensure better transport facilities across the country.

The Finance Minister said providing cheap, reliable and sustainable energy is government's top priority and fundamental need of the economy. He said 116.2 billion rupees have been allocated for the power sector in the federal development programme.

The Finance Minister said the most important hydropower initiatives include expansion of the Diamer-Bhasha Dam, fifth expansion of Tarbela Dam and Mohmand hydro power project.

For STATCOM and battery storage like advanced systems, 10.2 billion rupees and 3 billion rupees have been allocated respectively to improve the electricity transmission capability. To accelerate industrial development, priority has been given to supply of electricity to Special Economic Zones.

For clean and renewable energy, 50.2 billion rupees will be given to WAPDA for nine projects. Additionally, for eight hydropower projects in Azad Kashmir and Gilgit-Baltistan, a special allocation of 13.1 billion rupees has been made. In addition, WAPDA and National Grid Company will invest 158 billion rupees from its own resources.

Muhammad Aurangzeb underscored that Pakistan faces several water-related challenges such as declining storage capacity and floods caused by climate change. He mentioned that floods last year inflicted losses of 822 billion rupees on our economy. He said this highlights the urgent need for organized investment in this sector. Therefore, he said that in the federal development budget, 103.1 billion rupees have been allocated for water projects. Among the most important projects are: 14 billion rupees for Diamer-Bhasha Dam, 22 billion rupees for Mohmand Dam, 15 billion rupees for Dasu Hydropower Project and 10 billion rupees for Karachi's water supply project K-4.

Alluding to the increase in urban population, the Finance Minister said that 54.6 billion rupees have been allocated for sustainable urban development and housing sector.

He mentioned that one hundred and fifty thousand affordable and climate-resistant residential units will be constructed from this amount at the federal and provincial levels.

Digital master plans will be prepared for ten major cities, and improvement will be brought in urban water supply and sanitation.

He said that six point six billion rupees have been earmarked for industry and trade in the federal development program to accelerate industrial growth and enhance competitiveness.

He said the biggest portion of it will be spent on the construction of Block-A of Karachi Industrial Park.  He mentioned that industrial designing and automation centers are being established in Karachi, Lahore and Sialkot.

Similarly, under SMEDA, the second phase of one thousand Industrial Stitching Units in Sialkot is being expanded, which will create additional production capacity and new employment opportunities.

Muhammad Aurangzeb said 25.1 billion rupees have been allocated for health projects. These include: expansion of tertiary healthcare facilities, strengthening of emergency and critical care, expansion of cancer treatment facilities, an integrated disease surveillance system, and modernization of the diagnostic and regulatory framework.

The Finance Minister said forty-six billion rupees have been allocated for the higher education sector. He said the projects will include provision of scholarships to deserving students, increasing research capabilities of the universities, promoting digital learning through upgradation of Pakistan Education and Research Network and fostering AI based education.

Referring to the priority the government is according to education, the Finance Minister said that twenty two billion rupees have been allocated in the federal development budget for Daanish schools. Overall 26.3 billion rupees have been earmarked for school and college education.

He said 7.9 billion rupees have been set aside for the technical training and employment of the youth under the Prime Minister’s Youth Skills Development Program through NAVTTC.

An allocation of thirteen billion rupees for the governance sector will be used for civil services, justice, police and regulatory reforms and expansion of digital governance at the federal and provincial levels.

Regarding relief measures for the salaried class, the Finance Minister announced a seven percent increase in the salaries of government employees and for pensioners. He also proposed a ten percent increase in the minimum wage.

He said the government has decided to provide relief to the salaried class by reducing income tax rates across all four tax slabs. The tax rate for individuals earning between 2.2 million and 3.2 million rupees annually has been proposed to be reduced from 23 percent to 20 percent.

For taxpayers earning between 3.2 million and 4.1 million rupees a year, the tax rate has been proposed to be cut from 30 percent to 25 percent. The tax rate for salaried individuals earning between 4.1 million and 5.6 million rupees will be reduced from 35 percent to 29 percent, while those earning between 5.6 million and seven million rupees will see the rate lowered from 35 percent to 32 percent.

The Finance Minister said it has also been proposed to abolish the surcharge on the salaried class. He said the super tax ranging from one to 7.5 percent on businesses earning between 150 million and 500 million rupees has been withdrawn, while the rate on income exceeding 500 million rupees has been reduced from ten percent to eight percent.

Highlighting the significance of construction sector in creating employment opportunities and driving economic growth, Muhammad Aurangzeb said withholding tax on property transfer is being made reasonable. He said it is proposed to reduce the withholding tax for the filers on purchase from 2.5 percent to 1.25 percent and on sales, from 5.5 percent to 2.75 percent.  He hoped this measure will boost construction activities and strengthen the sector.

The Finance Minister said the digital economy is Pakistan’s fastest-growing source of income. Pakistan’s IT and IT-related services sector including freelancers, software houses, and digital exporters is our valuable asset. He said the FTR concession of 0.25 percent on the income of IT exports was set to expire by the end of this month.

He said it is proposed to extend this scheme for another three years until June 30, 2029. This measure will help increase Pakistan’s IT exports and encourage youth to join this sector.

He highlighted that the export sector is a major source of foreign exchange and a guarantor of our economic growth. He said currently exports are subject to a combined 2% tax under advance income tax and minimum tax. It is proposed to reduce this to 1.25 percent, which will be charged under the minimum tax category.

The Finance Minister said Capital Value Tax on foreign assets and tax on contraceptives as well as sanitary pads and other related items have been withdrawn.

The Finance Minister said every international transaction made through credit or debit cards is subject to a five percent withholding tax.

This high rate has encouraged the use of informal channels for money transfers. To discourage this trend, it is proposed to reduce the withholding tax rate to 0.5 percent. This will bring such transactions closer to normal financial practices and strengthen the government’s efforts to document the economy.    

Enumerating the revenue measures taken in the budget, the Finance Minister said it is proposed to introduce a Fixed Tax System for small retailers, emphasizing this system will apply to shopkeepers whose annual sales are two hundred million rupees or less. They will pay one percent tax on their annual sales under this system and they will be able to adjust their withholding tax in this tax. But at the time of submitting their returns, they will have to deposit at least twenty five thousand rupees. 

The Finance Minister said the retailers which will opt for fixed tax system will be provided with a green plaque having a verified QR code to be displayed on the shops. Under this scheme, there will be a simple one-page tax return available not only in Urdu but also in major local languages.

The Minister said a Federal Excise Duty (FED) of eighty rupees per litre is being imposed on petroleum based solvents, including white spirit, petroleum naphtha and mineral turpentine.

He said FED has been proposed on imported vehicles with engine capacities ranging from 2,000cc to 3,000cc, while the duty on vehicles above 3,000cc is being increased. The tax will also apply to luxury electric vehicles valued at over twenty million rupees. However, he said the FED on business-class foreign travel is being withdrawn.

Muhammad Aurangzeb said concessions on electric motorcycles, rickshaws, vehicles and buses will continue for the next year as well. He said the one percent sales tax facility will also be extended to imported electric trucks.

The Finance Minister also announced the withdrawal of Customs Duty on different types of raw material used in the local production of medicines for cancer and other diseases.