ISLAMABAD:
The National Assembly on Tuesday approved the expansive Rp18.8 trillion federal budget by a majority vote, and its successful implementation – including achieving a fiscal target of Rp15.3 trillion – is seen as critical to funding defense spending and accelerating the construction of large dams.
The lower house also passed the Finance Bill 2026 with several amendments, which authorizes the government to implement more than Rp 1 trillion in policy and compliance measures in an effort to meet the ambitious revenue target of Rp 15.264 trillion.
The budget will come into effect from July 1. It is the third budget of Prime Minister Shehbaz Sharif’s current tenure and the 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 of up to Rs 55,600 or a value of just $200. The combined tax on sliding rate and income tax has been reduced by Rs 1,230 or 86%. The revised tax rates are now Rs 300 per phone.
Prices of some packaged goods are expected to rise after the government decided to charge sales tax on their printed values. This would generate additional revenue of Rs 91 billion. Additional taxes of Rs 20 billion have also been imposed on high-end vehicles.
The expansive budget of Rs 18.8 trillion is 20% or Rs 3.1 trillion higher than the revised outlay of the outgoing fiscal year. The defense budget has been approved for 3 trillion rupees, including a provincial contribution of at least 335 billion rupees. More than Rs 8 trillion has been approved for interest payments as the Finance Ministry’s debt management strategy is also under scrutiny due to a couple of domestic and foreign debt transactions.
The National Assembly also approved a budget subsidy of Rs 252 billion to contain circular debt, reflecting poorly on the performance of the Power Division, which has failed to reduce the flow of debt to zero.
The House also approved a subsidy of Rs 8 billion to incentivize the use of electric vehicles, while the government has aimed to raise Rs 70 billion through the climate support tax and tax on internal combustion engines to promote vehicles with cleaner fuels.
The National Assembly authorized changes to Pakistan’s four tax laws, which would result in imposing just over 1 trillion rupees in additional measures and providing 360 billion rupees in relief.
The real estate sector has received a relief of Rs 115 billion from its tax contribution of just over Rs 200 billion. In comparison, the salaried class gets a relief of Rs 52 billion from the annual contribution of Rs 630 billion in the last fiscal year.
The 18.8 trillion rupees will be financed by taking 7 trillion rupees in new loans. This is in addition to provincial cash grants of Rp1.035 trillion to finance defense and mega dams, mainly the Diamer Basha, Mohmand and Dasu hydropower projects. But the provincial grants are subject to the Federal Board of Revenue’s (FBR) ability to raise the target of Rp15.264 trillion. In case of any deviation, the subsidy amount would be reduced automatically.
Finance Minister Muhammad Aurangzeb said earlier this month that provincial shares would be determined on the basis of 13.35 trillion rupees in taxes and that the additional amount of 1.9 trillion rupees would go to the federal government, including the provincial share of 1.035 trillion rupees.
During the last two fiscal years, the FBR missed its fiscal targets by wide 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 construction of mega dams will also be affected.
The federal budget deficit target is set at 4.9% of GDP or Rs 7 trillion, significantly higher than this fiscal year. The federal deficit is Rs 1.9 trillion or 36% higher than the outgoing fiscal year, showing that the government is no longer adopting the path of fiscal consolidation. Oil and carbon tax targets have been set at Rs 1,748 trillion for the next fiscal year, thanks to the Rs 80 per liter tax.
The National Assembly has approved granting income tax exemptions to nine more entities, including Quaid-e-Azam Mazar income. It has approved adding the Make-a-Wish Foundation, social security institutions for provincial employees and Workers’ Welfare Fund organizations to the list of exempt entities.
The House approved allowing traders to exit the newly announced fixed income tax regime from fiscal 2027. The government has offered an optional scheme for traders by offering them the option of paying just 1% of sales in income tax and a minimum of Rs 25,000 per year in exchange for exemption from audit and becoming part of the digital economy.
The National Assembly approved reducing the maximum automobile import taxes from 156% to 74% for vehicles up to 2,000 cc, making these cars cheaper. The proposal is in line with the National Tariff Policy.
The assembly also endorsed changes in import tariffs, facilitating trade liberalization during the second year by reducing the simple average of import tariffs from 16.56% to 13.8% during the new fiscal year.
The maximum tariff applied to vehicles over 1,800 cc has been reduced from the current 156% to 74%. Imported cars, SUVs and other vehicles with an engine capacity of 2,000 cc or more have been imposed an 86% federal excise tax. Likewise, vehicles with a cylinder capacity greater than 3,000 cc have been imposed a tax rate of 92%.
For vehicles in the 1,500 cc to 1,800 cc category, the combined duty has been reduced from 91% to 57%. Import duties applicable to vehicles from 1,000 cc to 1,500 cc have been reduced from 76% to 52%.
For vehicles from 850 cc to 1,000 cc, the maximum tariff has been set from 71% to 47%, and the maximum tariff for vehicles up to 850cc, bicycles and bodies has been reduced from 66% to 42%. For the auto parts sector, the maximum tariff has been reduced from 61% to 45%, including a 25% customs duty.
The Minister of Finance proposed four more amendments to the tax laws, which were also approved by the National Assembly. The house reduced the income tax rate for phones worth up to $200 from Rs 930 to Rs 100.
It also approved reducing the tax on mobile phones from Rs 600 to Rs 200 for the phone worth $200. The National Assembly also allowed people to pay high taxes on mobile phones in tranches, but the government did not reduce taxes on phones worth more than $200.
The National Assembly approved lowering the income tax at the import stage of crude glycerol; glycerinated waters and glycerol from 5.5% to 2%. It also allowed exemption from the 20% federal excise tax on mineral waters, sparkling waters, hydration beverages or electrolyte beverages specifically formulated to support the replacement of hydration electrolytes that contain artificial sweetener or sugar or both, not to exceed 5 g/100 ml.
Headed by Syed Naveed Qamar, the National Assembly Standing Committee on Finance also recommended numerous changes in tax laws, which the lower house approved.
