Pakistan Unveils Rs18.8 Trillion Budget for FY2026-27, Targets 4% GDP Growth
Pakistan's Finance Minister Muhammad Aurangzeb presented the Rs18.8 trillion budget for fiscal year 2026-27 in the National Assembly, targeting a 4% GDP growth rate and projecting average inflation at 8.2%. The budget includes significant tax reforms such as cuts for various income slabs, reduced withholding tax on foreign card transactions, and the withdrawal of taxes on sanitary pads and contraceptives. It also proposes a 7% raise in salaries and pensions for government employees, a 10% increase in the minimum wage, and substantial allocations for social welfare programs and defense.
Pakistan's Finance Minister Muhammad Aurangzeb introduced the Rs18.8 trillion budget for fiscal year 2026-27 to the National Assembly. The budget outlines key economic targets, including a projected 4% Gross Domestic Product (GDP) growth rate and an average inflation rate of 8.2% for the upcoming fiscal year. The fiscal deficit is aimed at 3.6% of GDP, with a primary surplus target of 2%. The session, held on Friday, was marked by protests from opposition members.
Total tax revenue for FY2026-27 is estimated at Rs15,264 billion, an increase of 17.6% from the previous year, with Rs8,848 billion designated for provinces. A new mechanism for federal and provincial revenue sharing has been agreed upon, where provinces will return certain amounts as grants to the federal government under Article 164 of the Constitution for strategic national requirements. The budget allocates Rs8,045 billion for markup payments, Rs3,000 billion for defense, and Rs1,071 billion for civil administration expenditures.
Several tax adjustments have been proposed. Income tax rates are to be reduced for four annual income slabs ranging from Rs2.2 million to Rs7 million. The 9% surcharge on the salaried class will be abolished, and the super tax for businesses earning between Rs150 million and Rs500 million annually will be eliminated, while it will be reduced from 10% to 8% for those exceeding Rs500 million. The withholding tax on foreign debit/credit card transactions will be slashed from 5% to 0.5%, and taxes on sanitary pads and contraceptives will be completely withdrawn. The Final Tax Regime for IT and freelance exporters has been extended until FY2030.
For public sector employees, the budget proposes a 7% increase in salaries and pensions, alongside a 10% increase in the minimum wage. The Benazir Income Support Programme (BISP) budget will rise by 17% to Rs838 billion, aiming to expand coverage to 12 million families. The Prime Minister's Apna Ghar housing scheme is allocated Rs71 billion, featuring a 5% mortgage facility. Additionally, the National Artificial Intelligence Ecosystem Development Programme is listed as a flagship $1 billion initiative. The federal Public Sector Development Programme (PSDP) is set at Rs1,000 billion, increasing to Rs1,451 billion with state-owned enterprise and public-private partnership funds.
The Finance Minister highlighted the government's focus on increasing production capacity, promoting exports through tax concessions and financing schemes, and providing loans to farmers. Reforms for the Federal Board of Revenue (FBR) are also planned to enhance tax enforcement and compliance without increasing the general tax burden. Muhammad Aurangzeb also noted the country's economic performance in the outgoing fiscal year, including a 3.7% GDP growth, 6.1% growth in large-scale manufacturing, and a rise in foreign exchange reserves to $17 billion.
According to Dawn Pakistan, the budget presentation was met with protests from opposition parties, including the PTI, and demands from the PPP regarding Sindh's water share.
