The government may also allocate Rs 3 trillion for defense expenditure and has finalized a relief of Rs 50 billion for the salaried class.
The federal government has cut the proposed development budget for the next fiscal year by Rs 126 billion, while three provinces except Balochistan would freeze their surge expenditure at current levels to create around Rs 500 billion of fiscal space for strategically important initiatives.
The government can also allocate around Rs 3 trillion for defense spending and has finalized a relief of Rs 50 billion for the salaried class, earning over Rs 183,400 a month by fiscal year 2026-27.
Representatives of the Pakistan People’s Party and the Pakistan Muslim League-N, coalition partners since 2022, have reached an agreement to rationalize development spending.
This would pave the way for the start of the much-delayed budget approval process, people familiar with the discussions between the coalition partners said. The express PAkGazette.
When contacted, Planning Minister Ahsan Iqbal confirmed that the proposed size of the Public Sector Development Program of Rs 1,126 trillion has been reduced by Rs 126 billion. The Finance Ministry has shared the revised indicative budget ceiling of Rs 1 trillion with the Planning Ministry, Iqbal said on Tuesday.
The government has cut the proposed PSDP by Rs 126 billion or 11.2% compared to the size approved by the Annual Plan Coordination Committee (APCC) for fiscal year 2026-27 earlier this month. For this fiscal year, the government has also cut the development budget to Rs 820 billion and Rs 590 billion has been spent so far.
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It is probably the first time that the federal PSDP has been cut before reaching the National Economic Council (NEC), which would now be finally chaired by Prime Minister Shehbaz Sharif on Wednesday.
The government had postponed the CNE meeting four times to develop an initial understanding among stakeholders on the next fiscal year’s budget.
Parliamentary Affairs Minister Tariq Fazal Chaudhry said the summary for convening the budget session has been moved and the budget is now likely to be presented on Friday.
Iqbal said the proposed PSDP worth Rs 1 trillion will be submitted to the NEC and stated that no new development plan will be included in the new fiscal year except those projects proposed by the Ministry of Defense and the Ministry of Interior.
The minister said provincial governments would also adjust their proposed annual development plans to create additional fiscal space.
Another government official said provinces would save more than 350 billion rupees from their development budgets. According to the understanding, the recently reduced PSDP size of Rp 1 trillion can be increased again to Rp 1.4 trillion once the federated units agree to give more resources to the center.
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The government had demanded Rs 1.2 trillion from the provinces to cover their additional expenses and provide tax relief. However, no immediate consensus could be reached to deduct money from the National Finance Commission through a Presidential Order or seek approval from the NEC. The IMF was also not comfortable with the NEC’s approval for additional spending.
The federal government wanted to allocate Rs 335 billion for critical water sector projects like Diamer Basha Dam, Mohmand Dam and Dasu Dam. An additional Rs 335 billion had been planned for strategically important initiatives.
The IMF has planned 2.665 trillion rupees for defense spending for the next fiscal year, but the government wanted to sanction around 3 trillion rupees due to increased hostilities on the eastern and western borders.
A senior MP said provinces would freeze their development budgets at this year’s actual spending. This will create some room for additional spending on strategic natural initiatives and funding of water sector projects.
Punjab, earlier this month, had informed the federal government that it would spend Rs 1.45 trillion on development in the next fiscal year, but the provincial government is now expected to reduce the spending budget by more than Rs 150 billion.
Sindh had also been informed that it would spend Rs 816 billion on development plans in the next fiscal year, an amount that would also decrease in light of a new understanding between shareholders. Khyber-Pakhtunkhwa plans to spend 564 billion rupees, but could freeze spending.
Balochistan’s new development budget is Rs 308 billion, which is already Rs 53 billion less than this year.
The IMF will also have to be taken into account. The global lender has placed a condition that the National Assembly will approve only its approved budget to ensure that the government does not abandon the path of fiscal stabilization.
Salary tax relief
Sources said the government could announce a relief of Rs 50 billion for the salaried class in the budget by reducing tax rates on monthly income over Rs 183,400, introducing a new slab and widening the ceiling that will attract the highest income tax rate.
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Salaried people are harmed by the government’s reckless measures of increasing petroleum tax to make up for the FBR shortfall and increasing their tax burden over the last three years, resulting in their direct tax contributions to over Rs 600 billion, excluding the impact of the tax.
For a monthly income of up to Rs 267,000, the tax rate could be reduced by 5% to 20%. There are around 400,000 people in this group. For a monthly income of up to Rs 341,000, the rate could be reduced to 25% with 160,000 taxpayers in this group.
The government may set a rate of 29% on a maximum of Rs 467,000 a month and could introduce a rate of 32% on a monthly income of up to Rs 583,000. For monthly incomes of more than Rs 583,000, more than Rs 7 million a year, the government wants to charge the maximum rate of 35%, relaxing the ceiling significantly.
Corporate relief
The government may also reduce the minimum rate of turnover tax to 1.25%, subject to fiscal space, which could provide around Rs 65 billion in relief. There is also a proposal to abolish super tax on annual income of up to Rs 400 million of individuals and reduce the highest super tax rate for companies to 8% to provide relief of Rs 100 billion.
The government also wants to give Rs 80 billion in aid to exporters and has shared the final package with the IMF.
