The federal budget for the fiscal year 2024–25 was officially introduced in the National Assembly on June 12, 2024, and enacted as the Finance Act 2024 on June 28, 2024. This budget has stirred nationwide conversations due to its extensive reforms aimed at enhancing revenue generation and achieving economic stability. The government’s declared intention is to steer the economy toward growth and fiscal responsibility, although securing a longer-term agreement with the International Monetary Fund is also a significant objective.
Objectives of the Budget
The overarching purpose of the 2024–25 budget is to broaden the tax base, reduce the fiscal deficit, and ensure a more documented and transparent economy.
To meet these goals, the budget includes a series of reforms targeting high-income earners, non-compliant taxpayers, and underregulated sectors. These changes are designed to realign Pakistan’s fiscal framework with global financial standards and restore investor confidence.
Tax Increases for Non-Salaried Individuals and Associations of Persons
A major revision in the new budget is the increased tax rate for non-salaried individuals and Associations of Persons. These groups, which typically include freelancers, contractors, and small businesses, now face a maximum tax rate of 45%, a steep jump from the previous 35%.
However, professional firms that are regulated by specific laws will face a capped rate of 40%. While this measure is likely to boost government revenues, it also increases the financial load on smaller entities operating outside the salaried class.
Introduction of Penalties for Non-Filers
In a strong push to enforce tax compliance, the budget includes strict penalties for individuals who fail to file their tax returns. These penalties include restrictions on international travel, blocking of mobile SIM cards, and disconnection of utility services.
The idea is to compel more individuals to enter the tax net. While this strategy may yield higher compliance rates, it may also inconvenience those who are unable to file for legitimate reasons such as lack of access, low literacy levels, or prolonged absence from the country.
Adjustments to Capital Gains Tax on Property Sales
Significant changes have been made to how capital gains on property transactions will be taxed. For properties acquired on or after July 1, 2024, the capital gains tax has been fixed at 15% for individuals who are registered taxpayers.
For non-filers, the tax rate varies between 15% and 45%, depending on the gain amount and duration of property ownership. The aim is to make property transactions more transparent and to promote tax filing. However, this shift may reduce speculative investment in real estate.
Real Estate Sector Response
The real estate sector is expected to feel the brunt of the new capital gains tax rules and penalties for non-filers. With increased tax rates and stricter documentation requirements, this traditionally unregulated sector will need to adapt quickly.
Though the measures may result in short-term market slowdown, they are likely to bring long-term stability and accountability. Industry experts have warned, however, that such abrupt changes might discourage investment until new norms are fully understood and accepted.
Impact on Salaried Employees
Though the budget primarily targets non-salaried professionals, salaried workers are not entirely unaffected. The rise in indirect taxation and persistent inflationary pressures will likely reduce their purchasing power.
Middle-class earners, who already bear a significant tax burden, may face added pressure if income slabs are revised or exemptions are withdrawn. The cumulative effect may be a decline in overall household spending, which could affect broader economic activity.
Corporate Sector and Export-Oriented Businesses
Businesses, especially exporters and large-scale corporations, are subject to new tax treatments under the current budget. Exporters now fall under the regular tax regime, with a mandatory 1% tax on export proceeds. The change aims to align exporters with domestic taxpayers and ensure equal tax treatment.
Moreover, high-income non-salaried individuals and AOPs earning over Rs. 500 million annually are now subject to additional taxes, leading to an effective tax rate that can reach up to 60%. While these changes are expected to enhance government revenue, they might also hinder capital reinvestment and reduce the competitiveness of local firms.
Reaction from Economic Analysts
The financial and academic community has offered mixed opinions on the budget. Supporters argue that the focus on tax compliance and regulation aligns with best international practices and could lead to long-term economic improvement.
Critics, however, point to the absence of concrete reforms in essential public service sectors such as education, healthcare, and infrastructure. They argue that without parallel social development initiatives, the benefits of higher revenue collection may not translate into improved quality of life for the average citizen.
Price Hikes and Inflation
With the removal of tax exemptions on several items, the cost of living is expected to rise. Goods such as stationery, medical kits, and diagnostic equipment, which were previously exempt from sales tax, are now taxable.
This will likely cause an increase in retail prices, particularly affecting families with school-going children and those requiring regular medical care. Inflation, already a concern, may escalate further if supply chain disruptions and fuel price adjustments coincide with these new tax burdens.
Employment and Economic Mobility
While the government’s stated objective is to improve the economy through fiscal discipline, the immediate effects on employment remain uncertain. Higher taxes on businesses may lead to reduced spending on expansion, technology, and recruitment.
This could slow down job creation in both public and private sectors. On the other hand, a more stable fiscal environment may, over time, encourage sustainable investment and eventually lead to improved employment prospects.
Gaps in Health and Education Reforms
Despite the broad scope of the budget, notable gaps remain in its approach to human development. There is a lack of substantial funding and reform initiatives for the health and education sectors.
Without focused investment in these areas, long-term economic growth and human capital development could be compromised. Many observers have called for a more balanced approach that includes targeted social sector spending along with revenue reforms.
Sector-Specific Case Studies
The textile industry, which is a major contributor to exports, now faces new compliance costs that could impact its pricing competitiveness in international markets.
Similarly, technology start-ups and SMEs, which had previously enjoyed a more lenient tax environment, are now required to adapt to stricter reporting and documentation standards. Agriculture, while less directly affected, could also see indirect impacts through higher input costs and reduced subsidies.
Regional and Provincial Considerations
Different provinces may experience varied effects depending on their economic structure and level of development. Urban centers such as Karachi, Lahore, and Islamabad are likely to feel the changes in property tax policies more acutely due to high transaction volumes.
In contrast, rural areas may experience indirect impacts through reduced government development spending and increased consumer prices. This uneven distribution of fiscal impact raises questions about regional equity and balanced economic development.
Anticipated Adjustments and Policy Flexibility
It remains to be seen how much flexibility the government will show in adjusting its fiscal approach based on public response and economic data. There is speculation that certain taxes or penalties might be revised if they prove too disruptive or ineffective.
Policymakers are expected to monitor economic indicators closely and may issue supplementary guidelines or amendments as necessary to ensure smoother implementation.
Initial Market Reactions
In the immediate aftermath of the budget announcement, financial markets showed mixed reactions. The stock exchange experienced minor fluctuations, reflecting investor caution.
Real estate transactions saw a temporary slowdown, and business sentiment surveys indicated growing concern over regulatory compliance and operational costs. Over time, as more clarity emerges around the implementation of the new measures, market behavior is expected to stabilize.
Public Sentiment and Civil Society Feedback
Public reaction has been divided. Some view the budget as a necessary step toward fiscal recovery, while others criticize it for disproportionately affecting the middle class and small enterprises.
Civil society organizations have called for more inclusive budgeting practices and greater transparency in public spending. They emphasize the need for citizen engagement in fiscal planning and more accessible communication from the government regarding tax obligations and social benefits.
Introduction to the Finance Act 2024
The federal budget for the fiscal year 2024–25 was officially introduced in the National Assembly on June 12, 2024, and enacted as the Finance Act 2024 on June 28, 2024. This budget has stirred nationwide conversations due to its extensive reforms aimed at enhancing revenue generation and achieving economic stability.
The government’s declared intention is to steer the economy toward growth and fiscal responsibility, although securing a longer-term agreement with the International Monetary Fund is also a significant objective.
Objectives of the Budget
The overarching purpose of the 2024–25 budget is to broaden the tax base, reduce the fiscal deficit, and ensure a more documented and transparent economy.
To meet these goals, the budget includes a series of reforms targeting high-income earners, non-compliant taxpayers, and underregulated sectors. These changes are designed to realign Pakistan’s fiscal framework with global financial standards and restore investor confidence.
Tax Increases for Non-Salaried Individuals and Associations of Persons
A major revision in the new budget is the increased tax rate for non-salaried individuals and Associations of Persons. These groups, which typically include freelancers, contractors, and small businesses, now face a maximum tax rate of 45%, a steep jump from the previous 35%.
However, professional firms that are regulated by specific laws will face a capped rate of 40%. While this measure is likely to boost government revenues, it also increases the financial load on smaller entities operating outside the salaried class.
Introduction of Penalties for Non-Filers
In a strong push to enforce tax compliance, the budget includes strict penalties for individuals who fail to file their tax returns. These penalties include restrictions on international travel, blocking of mobile SIM cards, and disconnection of utility services.
The idea is to compel more individuals to enter the tax net. While this strategy may yield higher compliance rates, it may also inconvenience those who are unable to file for legitimate reasons such as lack of access, low literacy levels, or prolonged absence from the country.
Adjustments to Capital Gains Tax on Property Sales
Significant changes have been made to how capital gains on property transactions will be taxed. For properties acquired on or after July 1, 2024, the capital gains tax has been fixed at 15% for individuals who are registered taxpayers.
For non-filers, the tax rate varies between 15% and 45%, depending on the gain amount and duration of property ownership. The aim is to make property transactions more transparent and to promote tax filing. However, this shift may reduce speculative investment in real estate.
Real Estate Sector Response
The real estate sector is expected to feel the brunt of the new capital gains tax rules and penalties for non-filers. With increased tax rates and stricter documentation requirements, this traditionally unregulated sector will need to adapt quickly.
Though the measures may result in short-term market slowdown, they are likely to bring long-term stability and accountability. Industry experts have warned, however, that such abrupt changes might discourage investment until new norms are fully understood and accepted.
Impact on Salaried Employees
Though the budget primarily targets non-salaried professionals, salaried workers are not entirely unaffected. The rise in indirect taxation and persistent inflationary pressures will likely reduce their purchasing power.
Middle-class earners, who already bear a significant tax burden, may face added pressure if income slabs are revised or exemptions are withdrawn. The cumulative effect may be a decline in overall household spending, which could affect broader economic activity.
Corporate Sector and Export-Oriented Businesses
Businesses, especially exporters and large-scale corporations, are subject to new tax treatments under the current budget. Exporters now fall under the regular tax regime, with a mandatory 1% tax on export proceeds. The change aims to align exporters with domestic taxpayers and ensure equal tax treatment.
Moreover, high-income non-salaried individuals and AOPs earning over Rs. 500 million annually are now subject to additional taxes, leading to an effective tax rate that can reach up to 60%. While these changes are expected to enhance government revenue, they might also hinder capital reinvestment and reduce the competitiveness of local firms.
Reaction from Economic Analysts
The financial and academic community has offered mixed opinions on the budget. Supporters argue that the focus on tax compliance and regulation aligns with best international practices and could lead to long-term economic improvement.
Critics, however, point to the absence of concrete reforms in essential public service sectors such as education, healthcare, and infrastructure. They argue that without parallel social development initiatives, the benefits of higher revenue collection may not translate into improved quality of life for the average citizen.
Price Hikes and Inflation
With the removal of tax exemptions on several items, the cost of living is expected to rise. Goods such as stationery, medical kits, and diagnostic equipment, which were previously exempt from sales tax, are now taxable.
This will likely cause an increase in retail prices, particularly affecting families with school-going children and those requiring regular medical care. Inflation, already a concern, may escalate further if supply chain disruptions and fuel price adjustments coincide with these new tax burdens.
Employment and Economic Mobility
While the government’s stated objective is to improve the economy through fiscal discipline, the immediate effects on employment remain uncertain. Higher taxes on businesses may lead to reduced spending on expansion, technology, and recruitment.
This could slow down job creation in both public and private sectors. On the other hand, a more stable fiscal environment may, over time, encourage sustainable investment and eventually lead to improved employment prospects.
Gaps in Health and Education Reforms
Despite the broad scope of the budget, notable gaps remain in its approach to human development. There is a lack of substantial funding and reform initiatives for the health and education sectors.
Without focused investment in these areas, long-term economic growth and human capital development could be compromised. Many observers have called for a more balanced approach that includes targeted social sector spending along with revenue reforms.
Sector-Specific Case Studies
The textile industry, which is a major contributor to exports, now faces new compliance costs that could impact its pricing competitiveness in international markets.
Similarly, technology start-ups and SMEs, which had previously enjoyed a more lenient tax environment, are now required to adapt to stricter reporting and documentation standards. Agriculture, while less directly affected, could also see indirect impacts through higher input costs and reduced subsidies.
Regional and Provincial Considerations
Different provinces may experience varied effects depending on their economic structure and level of development. Urban centers such as Karachi, Lahore, and Islamabad are likely to feel the changes in property tax policies more acutely due to high transaction volumes.
In contrast, rural areas may experience indirect impacts through reduced government development spending and increased consumer prices. This uneven distribution of fiscal impact raises questions about regional equity and balanced economic development.
Anticipated Adjustments and Policy Flexibility
It remains to be seen how much flexibility the government will show in adjusting its fiscal approach based on public response and economic data. There is speculation that certain taxes or penalties might be revised if they prove too disruptive or ineffective.
Policymakers are expected to monitor economic indicators closely and may issue supplementary guidelines or amendments as necessary to ensure smoother implementation.
Initial Market Reactions
In the immediate aftermath of the budget announcement, financial markets showed mixed reactions. The stock exchange experienced minor fluctuations, reflecting investor caution.
Real estate transactions saw a temporary slowdown, and business sentiment surveys indicated growing concern over regulatory compliance and operational costs. Over time, as more clarity emerges around the implementation of the new measures, market behavior is expected to stabilize.
Public Sentiment and Civil Society Feedback
Public reaction has been divided. Some view the budget as a necessary step toward fiscal recovery, while others criticize it for disproportionately affecting the middle class and small enterprises.
Civil society organizations have called for more inclusive budgeting practices and greater transparency in public spending. They emphasize the need for citizen engagement in fiscal planning and more accessible communication from the government regarding tax obligations and social benefits.
Public Sector and Development Funding
Public sector development programs are key to driving long-term growth and infrastructure modernization. However, the new budget introduces tighter controls on spending and a greater reliance on tax-based revenues.
While this is in line with fiscal prudence, it also raises concerns about underfunding in vital areas such as roads, utilities, and rural development. Provinces that depend on federal transfers may have to revise their own budgets accordingly.
Education Sector Challenges
Despite being a critical area for national development, the education sector has received limited attention in this budget.
With minimal increases in allocations and no major reforms introduced, public schools and universities are likely to continue facing shortages in infrastructure, staffing, and learning resources. This lack of prioritization may widen educational disparities and undermine workforce readiness in the long run.
Healthcare Sector Outlook
The healthcare system, already under pressure, has not been significantly strengthened through the budget.
Public health programs, vaccination drives, and hospital infrastructure development have not seen notable increases in funding. Rising inflation in the pharmaceutical and medical device sectors may further reduce affordability and access for the average citizen.
Agriculture and Rural Livelihoods
While agriculture forms a cornerstone of Pakistan’s economy, the sector received a mixed response in the budget. Input subsidies remain minimal, and there are no new initiatives targeting water efficiency, seed quality, or market access.
Farmers may struggle with rising input costs and limited technological advancement, potentially impacting food security and rural incomes.
Rising Cost of Living and Its Ripple Effect
The 2024–25 federal budget has had a direct influence on the cost of living for Pakistani citizens. The increase in indirect taxes and reduction in tax exemptions for essential goods has resulted in higher consumer prices across the board. As basic commodities become more expensive, households with limited income are feeling the pinch most severely.
Items that were previously zero-rated or exempt from sales tax, such as stationery and medical kits, now face taxation. This has raised the price of school supplies and diagnostic tools, which were already challenging for low-income groups to afford. Consequently, families are being forced to reprioritize their spending, often at the expense of education and healthcare.
Furthermore, the rise in petroleum prices and energy tariffs contributes to the inflationary cycle. As businesses adjust to higher input costs, prices for goods and services follow suit. This cascading effect hits consumers across all income brackets, but particularly those in middle- and lower-income tiers.
The Budget’s Impact on Small and Medium Enterprises (SMEs)
Small and medium-sized enterprises (SMEs) are considered the backbone of the Pakistani economy. However, the new tax structure, including higher rates for non-salaried individuals and AOPs, has placed additional financial pressure on these businesses.
Previously, SMEs operated with minimal tax exposure, but the introduction of stricter enforcement and enhanced documentation requirements has changed that dynamic. The implementation of increased withholding taxes and the requirement to remain compliant to avoid penalties such as travel restrictions and blocked SIMs have led many small business owners to reassess their operational models.
Access to credit, already limited in Pakistan, may become even more difficult as banks consider the higher compliance burden and financial instability among SMEs. These constraints could discourage entrepreneurship and slow down business expansion efforts, potentially reducing job creation and economic activity at the grassroots level.
Women Entrepreneurs and Gender-Specific Challenges
The revised fiscal policies affect women-led businesses in unique ways. In Pakistan, many women entrepreneurs operate informally or through microenterprises. With enhanced scrutiny on non-filers and a shift toward formalization, women business owners may struggle to meet tax filing and compliance requirements, especially those with limited financial literacy or digital access.
Women-led startups often lack access to tax consultants or professional help. The cost and complexity of compliance under the new tax regime can deter them from scaling up or registering their ventures formally. As a result, the progress made in women’s economic participation could stall unless there are targeted relief measures or educational campaigns to bring these entrepreneurs into the formal economy.
Moreover, changes to the availability and cost of essentials disproportionately affect women, especially in their role as primary caregivers. Increased prices of sanitary products, medicines, and household goods can strain family budgets and lead to reduced access to essential resources.
Youth and Educational Implications
The younger population is particularly vulnerable to the long-term consequences of the budget. Pakistan’s youth are already facing challenges related to unemployment, underemployment, and inadequate access to quality education. The budget does not include substantial reforms or increased funding for the education sector, leaving institutions reliant on existing limited resources.
Private schools are expected to pass on the effects of increased taxation and utility costs to students through higher tuition fees. This could reduce access to quality education for middle- and lower-income families. Additionally, the taxation on stationery and educational materials may further discourage school enrollment, particularly in rural or economically challenged regions.
Higher education is also expected to feel the strain. Universities that rely on public funding or donations may face budget cuts, while private institutions may raise their fees. This could lead to lower enrollment rates and hinder the development of a skilled workforce, ultimately impacting national productivity and competitiveness.
Public Healthcare and Budget Prioritization
One of the key areas of concern in the 2024–25 budget is the insufficient allocation toward healthcare. While indirect taxes have been expanded to include medical kits and certain healthcare-related imports, the budget does not reflect a proportional increase in government spending on public hospitals or health infrastructure.
This imbalance could lead to deteriorating service quality in government-run hospitals, pushing more people toward expensive private healthcare. For low-income households, this translates to higher out-of-pocket expenses or, in many cases, delayed or foregone medical treatment.
With inflation further increasing the cost of medication and health services, the affordability of healthcare is at risk. Preventive care may also decline if citizens hesitate to seek medical attention due to cost concerns, resulting in a potential rise in untreated illnesses and long-term public health consequences.
Impact on Pensioners and Fixed-Income Groups
Retirees and those living on fixed incomes face unique challenges under the current fiscal framework. As inflation erodes purchasing power, the absence of significant relief measures for pensioners increases their financial vulnerability.
While government employees and retirees do receive periodic pension adjustments, these increments often lag behind actual inflation rates. The budget does not provide substantial increases or mechanisms to adjust pension amounts in real-time with inflationary pressures, leaving many elderly citizens struggling to maintain their standard of living.
For those dependent on savings or investment income, the increased taxation on capital gains and property sales may reduce the overall return on investment. In turn, this could compromise long-term financial security, especially for individuals who rely on such earnings to meet their daily expenses.
Urban vs. Rural Divide: A Growing Gap
The budget’s impact is not uniform across geographical areas. Urban residents, while also affected by inflation and taxation, often have greater access to resources, employment opportunities, and financial services. In contrast, rural populations may find themselves increasingly marginalized.
In rural areas, access to tax facilitation, education, and healthcare remains limited. The imposition of indirect taxes on basic commodities and reduced support for agriculture can severely impact rural livelihoods. Farmers and laborers are particularly exposed to fluctuations in fuel and input prices, which affect their earnings and productivity.
Moreover, rural informal economies typically operate outside the formal tax structure. The government’s drive to increase documentation and penalize non-filers could disrupt local commerce unless supported by outreach and assistance programs. Without targeted development spending and infrastructure projects, rural regions may fall further behind in socio-economic terms.
Effects on Real Estate and Investment Behavior
The imposition of higher capital gains tax on properties acquired after July 1, 2024, has fundamentally shifted the outlook of the real estate sector. The tiered tax structure for filers and non-filers aims to promote transparency and discourage undocumented transactions, but it also introduces hesitation among investors.
Property flipping—a common form of short-term investment—may decline as tax liabilities reduce profit margins. This could result in reduced market liquidity, slower project turnover, and a potential drop in property values, at least in the short term. Developers may also experience delays in project financing as investors adopt a wait-and-see approach.
While the reforms could create a more stable and long-term investment culture in real estate, the adjustment period is expected to be challenging. A sluggish real estate sector can affect related industries such as construction, cement, steel, and home furnishing, further influencing employment and economic activity.
Exporters and Foreign Exchange Earnings
The reclassification of exporters under the normal tax regime and the minimum tax on export proceeds set at 1% are important changes. While these adjustments aim to align tax practices with international norms, they can also affect competitiveness.
Exporters now need to maintain full documentation, track input taxes, and comply with additional reporting. Smaller export-oriented businesses may struggle to adapt, while larger exporters face reduced profit margins due to the minimum tax requirement.
On the positive side, increased formalization could improve access to international trade benefits and government support. However, in the absence of incentives or subsidies, the burden of compliance might outweigh short-term gains, especially in sectors where Pakistan competes with low-cost international producers.
Remittances and Overseas Pakistanis
The budget does not include significant new incentives for overseas Pakistanis who contribute substantially to the national economy through remittances. While their financial input remains crucial for maintaining foreign exchange reserves, additional taxation or documentation requirements for remittance-related investments might discourage inflows.
Real estate has long been a preferred investment avenue for overseas Pakistanis. However, with the new capital gains tax structure and compliance requirements, many may look for alternative investment options outside Pakistan. This could slow the pace of foreign remittance-funded development projects and reduce economic momentum in certain urban centers.
Furthermore, regulatory uncertainty and lack of confidence in financial policies can affect long-term diaspora engagement. To maintain a stable inflow of remittances, consistent policies, transparency, and trust-building are essential.
Environment and Climate Resilience Measures
One aspect largely missing from the 2024–25 budget is a strong focus on environmental protection and climate resilience. Pakistan remains highly vulnerable to climate-related disasters, such as floods, droughts, and temperature extremes, yet the budget lacks substantial allocations toward climate adaptation projects or renewable energy development.
Increased taxation on fuel and lack of green infrastructure initiatives suggest that sustainability remains a low priority. Without investment in water management, forest conservation, and alternative energy, the country risks long-term economic and social damage.
Communities already affected by climate change will continue to face challenges in the absence of government-led initiatives to build resilience. This neglect could result in mounting costs for disaster response and lost productivity, further straining national resources.
Conclusion
The Federal Budget 2024–2025 represents a critical step in Pakistan’s efforts to stabilize its economy, meet international obligations, and strengthen its fiscal foundation. With a strong emphasis on broadening the tax base, enhancing documentation, and increasing revenue through revised tax policies, the budget introduces significant changes for individuals, businesses, and entire sectors.
Non-salaried individuals, Associations of Persons, and property owners are among the most impacted, facing higher tax rates and stricter compliance requirements. These measures, while aimed at ensuring equity and boosting national income, also risk increasing financial pressure on the middle class and small enterprises. The real estate sector, in particular, is subject to tighter controls and higher capital gains taxation, which may influence investment behavior in the short term.
The introduction of harsh penalties for non-filers, including restrictions on SIM cards, travel, and utilities, highlights the government’s push for a documented economy. These moves are intended to compel compliance but also raise concerns about accessibility and the readiness of citizens to navigate such a stringent environment.
Industries such as exports and manufacturing are being transitioned into a more standardized taxation framework, which may enhance transparency but also adds to operational costs. Simultaneously, the lack of direct and substantial reforms in essential areas like health, education, and human development raises questions about the inclusivity of economic growth envisioned by this budget.
Ultimately, the success of the Budget 2024–2025 hinges on effective implementation, administrative efficiency, and transparent governance. While the budget sets the stage for potential economic stability and long-term growth, its real impact will be determined by how well the government manages challenges related to inflation, social welfare, employment, and the business climate. Citizens, professionals, and businesses must stay informed and adapt to these changes to remain resilient in the evolving economic landscape.