A delegation from the Pakistan Peoples Party (PPP), led by Bilawal Bhutto Zardari, met with Prime Minister Shehbaz Sharif on Monday to discuss the upcoming federal budget. During the meeting, the government presented a draft budget worth approximately Rs17.5 trillion, which includes an 18% increase in defence spending. This rise, attributed to heightened tensions with India, was supported by the PPP, though the party expressed dissatisfaction with the proposed development allocations.
As with the current year, the government plans to introduce a tight, stabilisation-focused budget targeting a high primary surplus in line with its commitments to the IMF. The total budget is slightly lower than last year’s Rs18 trillion, due primarily to reduced interest payments following an 11% cut in the policy rate by the State Bank of Pakistan.
Despite agreement on increasing the defence budget—now set to surpass Rs2.5 trillion—differences emerged over the Public Sector Development Programme (PSDP). The government has proposed allocating Rs1 trillion, while the PPP is pushing for a higher amount, arguing that actual development spending has historically fallen short of allocations.
Planning Minister Ahsan Iqbal declined to comment on the PPP’s concerns, but Prime Minister Shehbaz Sharif formed a committee led by Deputy PM Ishaq Dar to bridge the gap between both parties ahead of the budget’s presentation, which is scheduled before the Eid holidays.
Regarding salaries and pensions, the government is considering a 6% salary hike and a 7% pension increase. However, these figures may be revised upward. With average inflation expected at around 5%, the government intends to adjust salaries accordingly.
The PPP raised concerns over the proposed Rs14.3 trillion tax target, calling it overly ambitious given the economic slowdown and declining industrial output. The party urged the government to shield key economic sectors—especially agriculture—and provide tax relief to the heavily burdened salaried class.
Sources say the government may introduce income tax for high-income pensioners while easing the tax burden on salaried employees. Proposals include raising the tax-free income threshold from Rs50,000 to over Rs83,000 per month and reducing income tax rates across all slabs by 2.5%. The current structure imposes a maximum 35% tax on monthly incomes above Rs333,000, which may be reduced to 32.5%.
The Federal Board of Revenue (FBR) is also considering revising tax slabs and introducing a new 20% bracket, although the IMF is reportedly against expanding the number of slabs beyond four. The government may proceed only after IMF approval expected later this month.
PML-N Senator Anusha Rehman argued that the salaried class deserves relief, noting that they paid Rs391 billion in income tax over nine months—10% of total income tax revenues—compared to just Rs26 billion paid by traders.
FBR officials stated that pensions, as a form of income, should be taxed, though any taxation would apply only to high-end recipients, such as retired senior officials earning over Rs200,000 monthly. Taxation would be set at a significantly lower rate than that for regular salaries.
The Rs14.3 trillion tax target for the next fiscal year marks a 16% increase from the revised target of the current year, with Rs1.5 trillion expected from nominal economic growth. The IMF is urging Pakistan to secure an additional Rs500 billion in revenue through further measures.
Meanwhile, various business associations presented their budget demands to the Senate Finance Committee. The poultry sector complained about high taxes, while the dairy industry reiterated its request to cut the sales tax on packaged milk from 18% to 5%. The FBR is considering reducing it to 5%, 10%, or 15%, though no decision has been made.
The fruit juice industry also requested a reduction in the federal excise duty from 20% to 15%, citing a 45% decline in sales and a 66% drop in mango demand due to high taxation.
Facing revenue shortfalls, the government recently issued a Presidential Ordinance allowing immediate recovery of taxes from bank accounts, following rulings by Pakistan’s high courts and the Supreme Court. Prime Minister Sharif has also instructed the Information Ministry to clarify the reasons behind the ordinance to the public.
