Pakistan’s Federal Budget for the fiscal year 2025–26 was presented to the National Assembly on June 10, 2025. With a total outlay of Rs. 17.6 trillion, the budget aims to steer the country toward economic revival, fiscal responsibility, and digital transformation. Developed in line with recommendations from international financial institutions, the budget strikes a balance between public relief and long-term structural change.
The overarching goals of the budget include improving tax compliance, expanding the national tax base, enhancing domestic resource mobilization, and setting the groundwork for a sustainable growth trajectory. With an ambitious roadmap, this fiscal framework is designed to tackle Pakistan’s pressing economic challenges while laying a foundation for inclusive progress.
Vision for Economic Revival
The 2025–26 budget represents a significant shift in policy direction, with growth-centered strategies forming the core of the fiscal blueprint. Pakistan has set an ambitious gross domestic product growth target of 4.2 percent for FY26. This represents a notable increase from the previous year’s 2.7 percent, indicating optimism about the recovery of key economic sectors.
The aim is to achieve this growth by fostering investment, expanding exports, supporting industries, and stimulating domestic demand. Several fiscal tools and policy measures have been included to support this growth objective. These include increased development spending, improved revenue mechanisms, and support for innovation and digitalization across economic sectors.
Enhancing the Tax-to-GDP Ratio
One of the budget’s primary objectives is to improve the country’s tax-to-GDP ratio. At present, the ratio remains at a relatively low 10 percent, which limits the government’s capacity to finance essential services and infrastructure. The new budget aims to raise this figure to 14 percent by broadening the tax base, closing loopholes, and promoting voluntary compliance.
Increasing the tax-to-GDP ratio is viewed as critical to reducing Pakistan’s dependency on foreign loans and enhancing fiscal sovereignty. This will be pursued through both direct tax enforcement and policy-level interventions, particularly those that focus on sectors historically underrepresented in the tax net.
Ambitious Revenue Collection Targets
To support the government’s spending plans, the Federal Board of Revenue has been tasked with collecting Rs. 14.13 trillion during FY26. This marks a significant 9 percent increase over the Rs. 12.9 trillion target set for the previous year. Achieving this level of tax revenue will depend on both policy reforms and enforcement strategies.
In addition to tax revenue, the government expects to raise Rs. 5.15 trillion through non-tax sources. These include dividends from state-owned enterprises, regulatory fees, petroleum levies, and central bank profits. Combined, these revenue streams are intended to improve fiscal stability without putting excessive pressure on external borrowing.
Targeting the Informal Economy
Bringing the informal economy into the tax net is a major priority in the 2025–26 budget. The government has introduced over Rs. 623 billion in new taxes that are specifically aimed at sectors that have long operated outside formal documentation, such as digital services, agriculture, and freelance work.
The move to tax digital transactions is part of a broader push to regulate and formalize emerging economic sectors. Freelancers, digital content creators, and online service providers are now required to report income, with taxes being applied on their transactions through dedicated mechanisms managed by financial institutions and third-party platforms.
Reining in Non-Filers
The budget introduces tougher restrictions on individuals and entities that have not filed income tax returns. Non-filers will be prohibited from purchasing motor vehicles, real estate, and financial securities. Additionally, their access to banking services may be limited, with restrictions on maintaining or operating certain types of bank accounts.
These measures aim to promote a culture of compliance and discourage the deliberate avoidance of tax obligations. The idea is to create a financial environment in which being a filer provides tangible benefits, while non-compliance incurs significant costs and limitations.
Digital Taxation and Withholding Policies
As the digital economy continues to grow, the government has introduced a final withholding tax ranging from 0.25 percent to 2 percent on e-commerce transactions. This tax will be collected at the point of sale or delivery by banks and courier services, effectively reducing leakage and ensuring accountability.
By targeting digital payments and formalizing income generated through online trade, the policy also aims to capture real-time transaction data. This data will be integrated into the tax authority’s systems, enabling better tracking of income and enhancing transparency in digital commerce.
Rationalizing Property Taxation
The real estate sector remains one of the largest but least regulated areas of economic activity. To encourage documentation and compliance, the advance tax rate on property purchases has been reduced for tax filers. It now stands at 1.5 to 2.5 percent, down from the previous range of 3 to 4 percent.
In contrast, the tax burden on non-filers has increased significantly. They will now be subject to property purchase taxes as high as 18.5 percent and sales taxes up to 11.5 percent. These differential rates are meant to incentivize registration and discourage speculative investments that distort housing markets.
Capital Gains and Dividend Tax Adjustments
The budget revises tax rates on capital gains and dividend income, with an eye toward improving tax equity and increasing government revenue. Gains from trading in stocks, real estate, and mutual funds will now attract higher tax rates. Debt-based mutual funds, in particular, will see dividend taxation increase from 15 to 25 percent depending on the nature of the investment and investor profile.
These revisions are expected to shift the tax burden slightly toward high-net-worth individuals and institutional investors. At the same time, they signal the government’s intent to streamline and harmonize tax treatment across different asset classes.
Focus on Non-Tax Revenue and Efficiency
While much of the focus has been on expanding the tax base, the budget also includes measures to enhance non-tax revenue collection and improve efficiency in public finance. Dividends from government-owned enterprises and returns from sovereign assets are expected to play a larger role in revenue generation.
Artificial intelligence will be used to analyze taxpayer behavior, flag discrepancies, and detect patterns of evasion. This AI-powered tax monitoring will enable the Federal Board of Revenue to deploy targeted audits and strengthen overall enforcement capacity.
Recognizing Digital Transactions
For the first time, the government will formally recognize digital transactions for the purpose of taxation. Gifts, loans, and investments made through digital platforms will be treated as legitimate financial activities and included in tax assessments.
This recognition is aimed at aligning Pakistan’s tax framework with global digital economy standards. It also provides a clear pathway for taxpayers to report digital income streams and financial transfers, thereby increasing formal financial participation.
Special Economic Zones and Tax Incentives
To attract long-term investment, the government has retained sales tax exemptions for Special Economic Zones and Special Technology Zones. However, a clear time limit has been established: these exemptions will apply for up to 10 years or until 2035, whichever is earlier.
By setting definitive timelines, the government intends to provide certainty to investors while ensuring that these zones do not become permanent tax-free enclaves. The focus remains on encouraging technology adoption, industrial development, and export promotion through structured incentives.
Implications of the Tax Reform Strategy
The reforms outlined in the 2025–26 budget reflect a deliberate shift toward documentation, equity, and digital transformation. By targeting under-taxed sectors, imposing stricter rules on non-filers, and increasing the taxation of capital gains and digital commerce, the government aims to establish a fairer and more robust revenue model.
The success of these measures will depend on consistent enforcement, taxpayer education, and technological readiness. A system that integrates real-time data, incentivizes compliance, and penalizes evasion could help Pakistan overcome many of its fiscal constraints and improve long-term economic resilience.
Overview of Budgetary Allocations by Sector
The 2025–26 federal budget reflects a clear prioritization of national development sectors, particularly in infrastructure, defense, education, healthcare, and agriculture. The budget aims to strike a balance between fiscal consolidation and economic stimulus by allocating significant resources to these areas while also attempting to maintain macroeconomic stability.
Infrastructure and Development
Infrastructure development continues to be a high priority. The Public Sector Development Programme (PSDP) for 2025–26 has been allocated over PKR 1.5 trillion, a marked increase from the previous year. These funds target the construction of roads, energy projects, dams, and transport corridors under the umbrella of national and regional development plans.
Special emphasis has been given to projects within the China-Pakistan Economic Corridor (CPEC), including upgrades to Gwadar Port and connecting roads, aimed at boosting trade and logistics. The federal government has also allocated funds for modernizing the railways and urban public transportation in major cities.
Defense and Security Spending
Pakistan’s defense budget for 2025–26 has seen a moderate increase, rising to around PKR 2.1 trillion. This increment reflects not only inflationary adjustments but also ongoing requirements to maintain national security amid regional tensions.
While critics argue for reallocation toward social sectors, government officials stress the importance of maintaining readiness and deterrence capabilities. The budget includes expenditures for equipment modernization, training, and enhanced surveillance systems.
Education Sector
Education remains a critical area in the development agenda. The federal allocation to the education sector has reached approximately PKR 123 billion. This includes funding for higher education through the Higher Education Commission (HEC), curriculum reforms, teacher training, and digital learning initiatives.
A sizable portion of this allocation is dedicated to improving access in rural areas and underprivileged regions, aiming to close the urban-rural education gap. However, much of the operational responsibility still lies with the provinces, as per the 18th Amendment.
Healthcare Funding
The federal budget for health has been increased to PKR 98 billion, addressing key priorities such as expanding immunization programs, enhancing maternal and child health services, and increasing preparedness for disease outbreaks. The federal government is also co-funding new healthcare facilities in remote regions and supporting the expansion of telemedicine platforms.
Additionally, the Sehat Card program has been extended to more regions, aiming to ensure broader access to healthcare coverage. This move is expected to lessen the burden on public hospitals and increase affordability of private medical services.
Agriculture and Food Security
Recognizing the agricultural sector’s role in economic stability and food supply, the 2025–26 budget allocates PKR 63 billion for agricultural development. Key components include subsidies on fertilizers and seeds, credit support for farmers, and investments in water conservation and irrigation technologies.
The budget also outlines strategic measures for ensuring food security, such as improving grain storage systems, mechanizing farming practices, and reducing reliance on imported staples.
Evolving Taxation Policies and Revenue Measures
In light of Pakistan’s commitment to the International Monetary Fund (IMF) reform agenda, taxation policies in the 2025–26 budget aim to broaden the tax base, reduce exemptions, and increase compliance. These measures are meant to boost revenue collection and reduce fiscal deficits without imposing undue hardship on low-income groups.
Income Tax Adjustments
For salaried individuals, the budget introduces slight adjustments in tax slabs. Those earning under PKR 50,000 per month remain exempt, while those in higher brackets now face marginally increased rates. The aim is to improve progressivity while shielding lower-income earners from inflationary pressures.
Non-salaried business income is also subject to updated tax rates, with measures to enhance digital traceability of transactions. To ensure better compliance, the government plans to expand data-sharing agreements with banks and the National Database and Registration Authority (NADRA).
Indirect Taxation: GST and FED
General Sales Tax (GST) reforms have taken center stage, with a gradual shift toward a uniform rate structure. The budget proposes reducing sector-specific exemptions and consolidating GST at a flat 18 percent across most categories. Essential food items, medicines, and basic utilities remain zero-rated or exempt.
The Federal Excise Duty (FED) structure has also been revised, particularly for tobacco, sugary beverages, and luxury items. The objective is dual: generate revenue and discourage consumption of health-adverse products.
Property and Real Estate Taxation
Real estate taxation has seen major reforms in this budget cycle. The government has introduced a capital gains tax on second and subsequent property sales within a specified period. Additionally, valuation tables have been revised to better reflect market rates, especially in urban areas.
This effort targets tax evasion through under-invoicing and seeks to bring speculative property investments within the formal economy. Real estate developers are also now required to disclose project-level financials, and tax compliance certificates are mandatory for new commercial developments.
Withholding Tax and Digital Economy
Withholding tax (WHT) continues to play a vital role in revenue collection. In this budget, the WHT regime has been restructured to reduce the number of transaction categories while increasing rates for non-filers. For instance, higher WHT applies to property purchases, vehicle registrations, and stock market investments if made by individuals outside the tax net.
A new focus area is the digital economy. The budget introduces measures to tax earnings from online platforms, including freelance income, influencer payments, and e-commerce sales. Registration of online businesses with the Federal Board of Revenue (FBR) is now compulsory, and digital wallet companies are required to report user income above specific thresholds.
Custom Duties and Trade Facilitation
To support local industry and manage the trade deficit, the budget revises import duties on select goods. Customs duties on raw materials and intermediate goods for priority sectors like information technology, agriculture machinery, and renewable energy have been lowered.
At the same time, luxury imports such as high-end vehicles, perfumes, and electronics face steeper duties. Trade facilitation measures include digital customs clearance, pre-arrival data exchange, and simplified valuation rules to reduce clearance time at ports.
Social Protection and Poverty Alleviation
The federal budget 2025–26 allocates significant resources for social welfare programs, with the intention of shielding vulnerable populations from economic shocks.
Benazir Income Support Programme (BISP)
BISP has received a record PKR 500 billion allocation, with plans to expand the number of beneficiary families and adjust cash stipends for inflation. Conditional cash transfers tied to school attendance, maternal health checkups, and vaccination compliance are a major component.
Digital payment systems are being introduced to improve transparency and reduce leakage in disbursement. Furthermore, a grievance redressal mechanism has been strengthened through mobile-based platforms.
Ehsaas Programme and Employment Initiatives
The Ehsaas framework remains central to the government’s social safety net. The budget outlines additional financing for Ehsaas Nashonuma (nutrition for mothers and children), interest-free loans for women entrepreneurs, and skill training initiatives for youth.
To tackle urban unemployment, the federal government has also allocated funds to support public works schemes and small business incubation. Provincial governments are expected to co-finance employment programs in collaboration with international donors.
Subsidies and Utility Relief
A substantial allocation has been made for energy and food subsidies to mitigate the impact of inflation on low-income households. Electricity and gas subsidies target lifeline consumers, while wheat and sugar subsidy programs are being managed at the district level.
However, the budget also emphasizes the need to gradually phase out blanket subsidies and replace them with targeted relief. This shift is intended to reduce fiscal pressure while ensuring benefits reach those who genuinely need them.
Fiscal Consolidation and Debt Servicing
One of the most challenging aspects of the 2025–26 budget is managing public debt and curtailing the fiscal deficit. The government has earmarked over PKR 9.7 trillion for debt servicing, a figure that consumes nearly half of federal revenues.
Domestic and External Debt Strategy
Pakistan’s public debt profile includes a mix of domestic borrowing and multilateral loans. The current budget continues to rely on Treasury Bills and Pakistan Investment Bonds for domestic financing while also securing budgetary support from institutions such as the IMF, World Bank, and ADB.
The government plans to gradually lengthen the maturity profile of domestic debt to reduce rollover risks and improve interest rate predictability. On the external side, concessional borrowing is preferred, and commercial borrowing is being minimized to lower the cost of funds.
Primary Balance Target
To demonstrate fiscal discipline, the federal government has set a primary surplus target of 0.4 percent of GDP. This is to meet IMF benchmarks and regain investor confidence. The primary surplus is to be achieved through a combination of revenue enhancement and expenditure rationalization.
Expenditure control measures include freezing certain non-essential spending, limiting public sector hiring, and promoting digital procurement systems for better cost tracking.
Sectoral Impacts and Strategic Shifts Across the Economy
The Pakistan Federal Budget 2025–26 introduced significant policy adjustments and fiscal strategies aimed at stabilizing the economy, increasing revenue, and supporting long-term development. We explored the macroeconomic framework, tax policies, and social development spending. This segment focuses on the budget’s sectoral implications, reforms for industrial growth, and the broader economic trajectory influenced by the fiscal blueprint.
Agriculture: Reviving a Traditional Backbone
Agriculture remains a vital sector in Pakistan’s economy, employing a substantial portion of the population and contributing heavily to exports. The 2025–26 budget outlined multiple initiatives to boost agricultural productivity, ensure food security, and support farmer incomes.
Key Budget Measures for Agriculture
The government announced subsidies for fertilizers, seeds, and farm machinery to reduce production costs and enhance yield. Additionally, the allocation for water infrastructure projects was increased, aiming to improve irrigation systems and manage climate-related challenges. Special attention was given to introducing climate-resilient crop varieties and promoting organic farming techniques.
Impact on Farmers and Rural Economies
These policy changes are expected to directly benefit smallholder farmers, who often face credit constraints and fluctuating market prices. The announcement of an Agricultural Development Fund and low-interest loan schemes for rural farmers is likely to stimulate investment in agriculture, while price stabilization mechanisms for key crops may reduce income volatility.
Industrial Sector: Strengthening Manufacturing and Exports
The industrial sector, particularly small and medium enterprises (SMEs), is central to job creation and economic growth. In the 2025–26 budget, a range of incentives were offered to revive industrial production and expand export capacity.
Customs and Tariff Reforms
One of the major announcements included rationalizing import tariffs on raw materials and intermediate goods to make domestic manufacturing more competitive. Export-oriented industries such as textiles, pharmaceuticals, and surgical equipment were granted additional concessions to encourage higher foreign exchange earnings.
Special Economic Zones (SEZs) and Industrial Infrastructure
The government reaffirmed its commitment to developing SEZs under the China-Pakistan Economic Corridor (CPEC). New funding has been allocated to upgrade existing zones and attract both local and foreign investors. These areas will benefit from tax holidays, energy subsidies, and improved logistics infrastructure.
Energy and Power Sector: Towards Sustainability and Efficiency
A large part of the federal budget focused on reforms in the energy sector to reduce circular debt, enhance renewable energy adoption, and ensure uninterrupted supply for domestic and industrial users.
Renewable Energy Initiatives
Investments in solar and wind power projects were prioritized, with the government allocating funds to expand grid integration and transmission capacity for renewables. A new policy to incentivize rooftop solar installations was introduced, especially for schools, hospitals, and public buildings.
Circular Debt Management
Addressing the circular debt crisis remained a top priority. The budget included restructuring plans for loss-making distribution companies and performance-based incentives for efficient billing and recovery practices. Independent Power Producers (IPPs) are expected to undergo contract renegotiations to reduce payment liabilities.
Digital Economy: Technology and Innovation
Recognizing the potential of Pakistan’s growing digital economy, the budget allocated funds to expand IT infrastructure, digital literacy, and e-governance projects.
Support for Startups and Tech Exports
IT-enabled services and software export companies were granted reduced tax rates and extended exemption periods. The government also introduced a venture capital facilitation framework and a dedicated startup fund to promote innovation and entrepreneurship.
Digital Skills and Freelancing
Training programs aimed at enhancing digital skills for youth were prioritized. Special programs under the Ministry of IT and National Vocational and Technical Training Commission were supported with funding to prepare the workforce for the gig economy, freelancing platforms, and remote jobs.
Education: Expanding Access and Quality
Despite budgetary constraints, the 2025–26 budget maintained its commitment to improving education infrastructure and outcomes.
Federal and Provincial Collaboration
A major policy shift involves stronger collaboration between federal and provincial education departments to standardize curriculum and examination systems. Funding was designated for teacher training, school rehabilitation in underserved areas, and digital learning platforms.
Higher Education and Research
Research and development (R&D) saw renewed support, with increased funding for universities, innovation labs, and public-private research partnerships. Scholarships for underprivileged students were expanded to promote inclusive education access.
Healthcare: Strengthening Public Health Infrastructure
Healthcare allocations in the budget focused on preventive care, hospital modernization, and health insurance expansion under existing programs.
Universal Health Coverage (UHC)
The Sehat Sahulat Program was extended with broader coverage, especially for maternal and child health services. New districts were added to the insurance network, while diagnostic services and telemedicine were given a boost through digital health platforms.
Epidemic Preparedness and Mental Health
Acknowledging the lessons from recent health emergencies, the government set aside emergency funds for epidemic preparedness. For the first time, mental health was included in the primary healthcare framework, with resources dedicated to awareness campaigns and counseling services.
Infrastructure and Transportation: Building Economic Corridors
Infrastructure development plays a central role in economic planning. The federal budget prioritized key connectivity projects under both the Public Sector Development Programme (PSDP) and CPEC.
National Highways and Urban Transit
Significant resources were directed toward the expansion and maintenance of national highways. Urban transit systems in major cities, including bus rapid transit and rail-based projects, received renewed attention to improve mobility and reduce congestion.
Water and Sanitation Projects
Funding was increased for urban water supply, sewerage systems, and solid waste management to address growing environmental and public health concerns. In rural areas, clean drinking water and irrigation enhancement programs were prioritized.
Defense and Internal Security
Defense spending remained a significant part of the federal budget, reflecting the country’s security needs and regional dynamics.
Balanced Security Spending
While defense received a nominal increase, the government emphasized better resource management within the armed forces. Investments in cybersecurity, surveillance technologies, and border security infrastructure were also highlighted.
Law and Order
Internal security and law enforcement agencies were provided additional resources for training, mobility, and intelligence capabilities. Counterterrorism and narcotics control efforts were reinforced with budgetary backing.
Climate Change and Environmental Protection
Climate resilience emerged as a major theme across sectors, with the budget supporting mitigation and adaptation measures.
National Climate Resilience Strategy
A cross-sectoral climate budget tagging system was introduced to align development spending with climate goals. Funding was allocated for reforestation, flood protection infrastructure, and early warning systems.
Carbon Markets and Green Financing
The government signaled interest in developing carbon markets and exploring international green bonds to fund climate action. Environmental impact assessments for major development projects were made mandatory to ensure compliance.
Public Sector Reform and Governance
Institutional reform and efficiency in government spending were essential components of the 2025–26 budget.
Digitization of Public Services
E-governance initiatives were expanded to digitize citizen services, tax systems, and land records. The Federal Board of Revenue continued automation efforts to enhance compliance and transparency.
Civil Service Reform
The budget highlighted reforms to improve the performance and accountability of civil servants. A performance-based evaluation system and capacity-building programs for bureaucrats were among the proposed changes.
Gender Mainstreaming and Social Inclusion
The federal budget embedded gender and inclusion objectives across ministries and development programs.
Women’s Economic Empowerment
Women-led businesses and entrepreneurs were provided with access to interest-free microfinance and enterprise development grants. Specific funding was allocated for women’s training centers, safe transport schemes, and maternity care facilities.
Disability Inclusion and Marginalized Communities
Social protection measures were expanded to include persons with disabilities and other marginalized groups. Quotas in employment, education, and housing projects were reinforced through budget provisions.
Revenue Generation and Fiscal Sustainability
While most development goals require significant outlays, the government also emphasized fiscal prudence and revenue generation to reduce reliance on debt.
Public-Private Partnerships (PPP)
The budget promotes greater use of PPPs for infrastructure and service delivery projects. Legal and regulatory frameworks were amended to attract long-term investors and mitigate project risks.
Broadening the Tax Base
Efforts to document the informal economy, enforce property tax collection, and bring high-income sectors into the tax net were reiterated. Incentives for voluntary compliance and data sharing between agencies were part of the strategy.
Conclusion
The Pakistan Federal Budget 2025–26 lays out an ambitious fiscal path aimed at stabilizing the economy while striving to address long-standing structural challenges. Across this series, we’ve explored how the budget attempts to strike a balance between austerity and public welfare, encourage domestic and foreign investment, and enhance revenue collection without disproportionately burdening vulnerable populations.
From the perspective of taxation, the budget introduces several measures to widen the tax base and plug loopholes in the existing system. Efforts to boost documentation, increase compliance, and introduce digital reforms are steps in the right direction, though their success depends heavily on transparent implementation and institutional cooperation. On the expenditure front, the government has prioritized debt servicing, defense, and social safety nets while allocating funds toward key development sectors like health, education, and infrastructure.
Particularly notable is the emphasis on industrial revival, agriculture modernization, and sustainable energy production. While the intent is commendable, the government’s ability to achieve these goals hinges on macroeconomic stability, improved governance, and consistent policy execution. The role of international financial institutions and donor agencies also remains crucial, as their support will significantly influence the budget’s impact over the fiscal year.
At its core, this budget reflects an attempt to manage a fragile economic recovery while cautiously nurturing growth. Stakeholder engagement, effective monitoring, and regular assessments will be essential to ensure that fiscal policies translate into tangible benefits for Pakistan’s population. As the fiscal year progresses, the government’s capacity to respond to internal and external shocks will determine whether the 2025–26 budget becomes a turning point or just another transitional document in Pakistan’s economic history.