ISLAMABAD:
The National Assembly on Tuesday passed by a majority the expansionary federal budget of 18.8 trillion rupees, whose successful implementation – including meeting a fiscal target of 15.3 trillion rupees – is seen as key to financing defense spending and accelerating the construction of large dams.
The lower house also approved the Finance Bill 2026 with several amendments, authorizing the government to implement over 1,000 billion rupees in policy and enforcement measures in a bid to achieve the ambitious revenue target of 15,264 billion rupees.
The budget will come into effect on July 1. This is the third budget in Prime Minister Shehbaz Sharif’s current term and his fifth consecutive budget since the ouster of former Prime Minister Imran Khan in 2022.
The National Assembly also approved last-minute changes to tax laws, including a reduction in the tax burden on imported mobile phones to up to 55,600 rupees, worth just $200. The combined tax under mobile deduction and income tax has been reduced by Rs1,230, or 86%. The revised deduction rates are now Rs 300 per handset.
Prices of some packaged products are expected to rise after the government decided to impose a sales tax on their printed values. This would generate Rs91 billion in additional revenue. Additional taxes of Rs20 billion have also been imposed on high-end vehicles.
The expansionary budget of Rs 18.8 trillion is 20 per cent, or Rs 3.1 trillion, higher than the revised outlay of the outgoing fiscal year. The defense budget was approved to the tune of 3,000 billion rupees, including at least 335 billion rupees provincial contribution. Over Rs 8 trillion has been approved for interest payments, with the Finance Ministry’s debt management strategy also coming under scrutiny due to some domestic and foreign debt deals.
The National Assembly also approved a budgetary grant of Rs252 billion to contain the circular debt, which reflects badly on the performance of the Power Division which failed to bring the debt flow to nil.
The House also approved a subsidy of 8 billion rupees to encourage the use of electric vehicles, while the government has set a target of raising 70 billion rupees through a climate support tax and a tax on internal combustion engines to promote cleaner fuel vehicles.
The National Assembly has cleared changes to Pakistan’s four tax laws, which would result in the imposition of just over 1 trillion rupees in additional measures and a relief of 360 billion rupees.
The real estate sector received a relief of Rs115 billion from its tax contribution of just over Rs200 billion. Compared to this, the salaried class gets a relief of Rs 52 billion from the annual contribution of Rs 630 billion during the last financial year.
The 18.8 trillion rupees will be financed by new loans of 7 trillion rupees. This is in addition to provincial grants of Rs 1,035 billion to fund defense and mega dams, mainly the Diamer Basha, Mohmand and Dasu hydropower projects. But the provincial grants are subject to the ability of the Federal Board of Revenue (FBR) to collect the target of Rs15.264 trillion. In the event of slippage, the amount of the subsidy would be automatically reduced.
Finance Minister Muhammad Aurangzeb said earlier this month that provincial shares would be determined based on Rs13.35 trillion in taxes and the additional Rs1.9 trillion would go to the federal government, including the provincial share of Rs1.035 billion.
In the last two fiscal years, the FBR missed its fiscal targets by whopping margins of Rs 2.3 trillion. But this time, if the FBR fails to meet its targets, Pakistan will also have to seek a waiver from the IMF and its plans to accelerate the construction of mega-dams will also be affected.
The federal budget deficit target is set at 4.9 per cent of GDP or Rs 7 trillion, which is significantly higher than this fiscal year. The federal deficit is at Rs 1.9 trillion, 36% higher than that of the previous financial year, showing that the government is no longer taking the path of fiscal consolidation. Oil and carbon tax targets have been set at Rs 1.748 trillion for the next financial year, through a tax of Rs 80 per liter.
The National Assembly approved granting income tax exemptions to nine other entities, including the Quaid-e-Azam Mazar Income. It approved the addition of the Make-A-Wish Foundation, provincial employees’ social security institutions and Workers’ Social Protection Fund organizations to the list of exempted entities.
The house approved allowing traders to exit the recently announced fixed income tax regime from FY 2027. The government has offered an optional scheme to traders, offering them the option to pay just 1% of their sales as income tax and a minimum of Rs 25,000 per year in return for exemption from audit and integration into the digital economy.
The National Assembly approved the reduction of maximum import taxes on cars from 156% to 74% for vehicles up to 2,000 cc, making these cars cheaper. The proposal is in line with the national pricing policy.
The assembly also approved changes in import tariffs, facilitating trade liberalization in the second year by reducing the simple average of import tariffs from 16.56% to 13.8% in the new financial year.
The maximum tariff on vehicles over 1,800 cc has been reduced from 156% to 74%. On imported cars, SUVs and other vehicles with an engine capacity of 2,000 cc and above, a federal excise tax of 86% was imposed. Similarly, on vehicles whose engine capacity exceeds 3,000 cc, a tax rate of 92% has been imposed.
For vehicles in the 1,500 cc to 1,800 cc category, the combined rate has been lowered from 91% to 57%. Import duties on 1,000-1,500 cc vehicles have been reduced from 76% to 52%.
For vehicles from 850 cc to 1,000 cc, the maximum tariff has been set at 47% instead of 71%, and the maximum tariff on vehicles up to 850 cc, motorcycles and bodies has been reduced from 66% to 42%. For the auto parts sector, the maximum duty has been reduced from 61% to 45%, including 25% customs duties.
The Minister of Finance proposed four other amendments to the tax laws, which the National Assembly also approved. The house reduced the income tax rate on handsets worth up to $200 from Rs930 to Rs100.
He also approved reduction of tax on handsets from Rs600 to Rs200 for handset worth $200. The National Assembly also authorized people to pay heavy taxes on cell phones in installments, but the government has not reduced taxes on cell phones worth more than $200.
The National Assembly approved the reduction of income tax at the stage of importation of crude glycerol; glycerol waters and glycerol from 5.5% to 2%. It also authorized the exemption of the 20% federal excise tax on mineral waters, sparkling waters, hydrating drinks or electrolyte drinks specifically formulated to support the replenishment of hydrating electrolytes containing an artificial sweetener or sugar or both not exceeding 5 g/100 ml.
Headed by Syed Naveed Qamar, the National Assembly’s Standing Committee on Finance also recommended numerous changes in tax laws, which the lower house approved.
