The federal government on Friday presented its budget for the fiscal year 2026-27, announcing a total outlay of Rs18.771 trillion, a rise of seven per cent over the Rs17.57 trillion budgeted in the outgoing year. The budget sets a GDP growth target of four per cent and projects inflation at 8.2 per cent, signalling cautious optimism in a still-challenging macroeconomic environment.
Revenue and Fiscal Framework
The Federal Board of Revenue has been assigned a collection target of Rs15.26 trillion, an increase of over eight per cent from the Rs14.13 trillion target set for FY26. Non-tax revenue is projected at Rs5.336 trillion. The fiscal deficit has been contained at 3.6 per cent of GDP, while the government has committed to a primary surplus of 2 per cent of GDP, a figure that reflects continued pressure from IMF programme conditionalities.
Debt Servicing and Defence
The single largest expenditure head remains interest payments, which have risen to Rs8.054 trillion, up sixteen per cent from the revised Rs6.937 trillion in FY26. Pension payments stand at Rs1.169 trillion, up eleven per cent from the previous year. Defence affairs and services have been allocated Rs3 trillion, a rise of 15.6 per cent over the revised Rs2.6 trillion of FY26.
Wages, Salaries and Pensions
Government employees will receive a seven per cent increase in salaries and pensions. The national minimum wage has been raised to Rs40,700 per month, a ten per cent increase from Rs37,000 in FY26, offering some relief to low-income workers against persistent cost-of-living pressures.
Development Spending
The Public Sector Development Programme has been allocated Rs1 trillion. Within the federal development programme, health projects have received Rs25.1 billion, education Rs46 billion, and governance Rs13 billion. The Prime Minister’s Apna Ghar Programme has been allocated Rs71 billion, while the Benazir Income Support Programme continues as the principal social protection vehicle with an allocation of Rs838 billion.
Tax Relief for Individuals and Salaried Class
One of the more notable features of this budget is a meaningful reduction in income tax rates across multiple brackets. Taxpayers earning between Rs2.2 million and Rs3.2 million will see their rate fall from 23 per cent to 20 per cent. The rate for those earning between Rs3.2 million and Rs4.1 million drops from 30 per cent to 25 per cent. Earnings between Rs4.1 million and Rs5.6 million will be taxed at 29 per cent instead of the previous 35 per cent, and income between Rs5.6 million and Rs7 million will attract a rate of 32 per cent rather than 35 per cent. The surcharge on the salaried class has been abolished entirely, including for those earning above Rs12 million annually.
Business and Trade Measures
The export development surcharge of 0.25 per cent on export income has been abolished. Advance income tax and minimum tax on exports have been reduced from 2 per cent to 1.25 per cent. Withholding tax on property purchases has been halved from 2.5 per cent to 1.25 per cent, and on sales from 5.5 per cent to 2.75 per cent. Withholding tax on international transactions through credit and debit cards has been sharply reduced from five per cent to 0.5 per cent.
The Super Tax has been cut by two per cent for income exceeding Rs500 million, though banks, fertiliser companies, and exploration and production firms have been excluded from this relief. The minimum tax rate for distributors and wholesalers has been increased from 0.25 per cent to 0.5 per cent.
A fixed tax scheme titled Asaan has been introduced for retailers earning up to Rs200 million, who will pay a minimum of Rs25,000 annually or one per cent of sales, whichever is higher.
New Levies and Excise Measures
Sport utility vehicles between 2,000 and 3,000cc will now attract federal excise duty. A new FED of Rs80 per litre has been imposed on petroleum-based solvents, naphtha, and turpentine oil, which were previously exempt. The federal excise duty on e-liquids for e-cigarettes has been raised from Rs10,000 to Rs16,500 per kilogram, with the previous 65 per cent retail price cap removed.
Outlook
The FY2026-27 budget arrives at a moment when Pakistan is navigating the conditions of an IMF programme while attempting to restore investor confidence and revive industrial activity. The revenue targets are ambitious, the debt burden remains heavy, and the development allocations, particularly for health and education, are modest relative to need. Whether this budget succeeds will depend less on the numbers announced and more on the quality of governance, implementation capacity, and structural reforms that accompany it.
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