Pakistan’s Finance Minister Muhammad Aurangzeb on Tuesday unveiled the federal budget for fiscal year 2026, aiming for a 4.2% economic growth and an ambitious increase in tax collection, as the country seeks to cement its recent economic stability. The budget, presented amidst opposition protests in the National Assembly, emphasises bolstering financial security and transforming the tax authority.
The government has set a challenging tax collection target for the Federal Board of Revenue (FBR) at ₹14,131 billion ($49.9 billion), an 8.95% increase from the previous year’s goal. This comes as Pakistan targets a tax-to-GDP ratio of 14%, a figure Aurangzeb deemed “unavoidable” for achieving national economic objectives. The proposed tax-to-GDP ratio for FY26 is 12.3%, comprising the FBR’s share (10.6% of GDP), provincial collections, and the petroleum development levy.
To achieve this, the minister outlined significant reforms for the FBR, including the implementation of B2B e-voicing, AI-based audit selection systems for sales and income tax, e-billing, and faceless audits. A new central control unit will also be established to centralize data collection. Aurangzeb highlighted early successes, stating that 390,000 high-value non-filers were identified through data integration, leading to a recovery of ₹300 million. He also noted a 100% increase in tax filers, contributing ₹105 billion in revenues, and an acknowledgement by the IMF of ₹389 billion in revenues through law enforcement.
While specific new tax measures were not fully detailed in the provided information, broader strategies indicate a shift towards “equity” in taxation, implying higher taxes on certain goods and services. There are proposals to increase sales tax rates on a wide range of items, and to impose 18% sales tax on e-commerce and imported solar panels. The government is also considering a 2.5% monthly tax on pensions exceeding ₹400,000 per month and a 20% “health tax” on processed foods and beverages. Efforts are also being made to broaden the tax base by potentially taxing agricultural income and extending tax measures to previously exempt regions.
The overall federal budget for fiscal year 2026 has a total outlay of Rs17.573 trillion, representing a 6.9% decrease from the previous year. Current expenditure is proposed at ₹16,286 billion, a 5.33% decrease. Interest payments, or debt servicing, remain the single largest expense at ₹8,207 billion, consuming almost half of the total budget. Defence expenditure has been increased by 20.2% to Rs2,550 billion, constituting 1.97% of GDP.
The government aims for a fiscal deficit of 3.9% of GDP and a primary surplus of 2.4% of GDP, with an inflation target set at 7.5% for the next fiscal year. The minister also projected significant cash flows, tax, and royalties from the Reko Diq gold mines, terming it a “game changer” for the country’s financial future.
